SEC + CFTC Whistleblower Programs

Rewards to Whistleblowers for Reporting Fraud on Wall Street

In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which, among other things, established whistleblower reward programs within the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Whistleblowers who report violations of the securities laws or the Commodity Exchange Act can receive rewards of 10 to 30 percent of the amount the government collects in successful enforcement actions over $ 1 million (including penalties, disgorgement and restitution).

The SEC and CFTC determine the amount of the reward within the 10 to 30 percent range, taking into account the significance of the information, the degree of assistance provided by the whistleblower and his/her counsel, and the overall deterrent effect of making awards to whistleblowers, along with additional factors that are contained in the SEC’s or CFTC’s rules and regulations.

Government employees and employees of self-regulatory organizations are not eligible for rewards, nor is anyone criminally convicted for the violation that she reports. Both the SEC and CFTC whistleblower program rules prohibit officers, directors, and those involved in audit and compliance functions from receiving an award, unless the individual has reported internally and the company has failed to take action within 120 days, or if the individual reasonably believes that investors will be substantially injured or that the entity is engaging in conduct that will obstruct the Commission’s investigation. Rewards cannot be paid for information derived from public disclosures, unless the person was the source of the information.

Whistleblowers may file for an award anonymously, provided they are represented by an attorney. The Act requires the Commissions to preserve the confidentiality of information provided by whistleblowers and their identity. Even in announcing awards paid to whistleblowers, both the SEC and CFTC have been fastidious in guarding the identity of the whistleblower by carefully screening the information released about awards.

The Act also allows whistleblowers to bring an action for retaliation by employers for reporting fraud to the Commissions or assisting an investigation conducted by the Commissions. The employee may sue for reinstatement, back pay and attorneys’ fees.