SEC Issues Award to Corporate Officer Whistleblower

The U.S. Securities and Exchange Commission (SEC) Whistleblower Office announced yesterday that it would pay a whistleblower award of between $475,000 and $575,000 to a former corporate officer who reported fraud that he or she learned of through another employee reporting the misconduct internally.  Although information received by an officer in connection with internal reporting of illegalities generally does not qualify for a whistleblower award, an exception exists where the officer waits at least 120 days from the date that compliance personnel possessed the information before reporting it to the SEC.  This is the first SEC whistleblower award issued under these circumstances.  The identity of the whistleblower has not been released by the SEC, and the agency will not release any identifying information without the whistleblower’s express consent.

Andrew Ceresney, Director of the SEC’s Division of Enforcement, noted that providing awards in circumstances such as these is critical because “Corporate officers have front-row seats overseeing the activities of their companies.”  Mr. Ceresney added, “This particular officer should be commended for stepping up to report a securities law violation when it became apparent that the company’s internal compliance system was not functioning well enough to address it.”

The Chief of the SEC’s Office of the Whistleblower, Sean McKessy, addressed the importance of whistleblowers in the broader sense.  Mr. McKessy stated, “Receiving information and cooperation from company insiders is particularly useful in the early detection of securities fraud, and we will continue to leverage whistleblower information to help combat securities law violations and better protect investors and the marketplace.  Meanwhile, companies must have rigorous internal compliance programs that adequately address and remedy potential violations voiced by their employees as well as by their officers, directors, or other individuals.”

Katz, Marshall & Banks partner David J. Marshall, who represents individuals before the SEC Whistleblower Office, said that yesterday’s award “once again demonstrates the delicate – and workable – balance that the SEC program strikes between preserving internal compliance programs and ensuring that the commission’s door is open to whistleblower tips when those programs fail to correct known securities violations.”