SEC Waives Voluntary Rule to Award $400,000 to Whistleblower

On July 31, 2014, the U.S. Securities and Exchange Commission (SEC) announced in a press release that an anonymous whistleblower would be awarded over $400,000 after reporting fraud to the SEC. The whistleblower first encouraged the company to address the issue internally. Once it became clear that the company would not be addressing the claims internally, the whistleblower reported the fraud to the SEC.

KMB partner David Marshall observed that attempting to resolve the issue internally first is common among whistleblowers. “It’s important to remember, as I see over and over again in my practice representing whistleblowers,” Marshall said, “that the great majority decide to report their concerns to the SEC only after their employers have declined to investigate and address the violations they have reported.”

According to the SEC, the whistleblower’s information was crucial for allowing the investigation to be completed quickly and efficiently. The SEC has not revealed details regarding the fraud or the company because the agency is required by law not to disclose any information that could reveal the whistleblower’s identity.

To qualify for awards from the SEC, whistleblowers normally need to submit information “voluntarily.” In this case, the whistleblower’s submission of information was not strictly voluntary since another federal agency had already requested information from him regarding the company’s violations of securities laws. Despite this, the SEC decided to award the whistleblower because of the whistleblower’s diligent efforts to correct the illegal activity.

Marshall commented that the SEC’s decision to waive the voluntary requirement is an important message to future whistleblowers. “It demonstrates that the SEC is intent enough on encouraging internal reporting of perceived securities violations that it is willing to waive certain program requirements as set forth in the rules,” Mr. Marshall said.