The Securities Exchange Commission has had its whistleblower/tipster program in place since the time that Dodd-Frank took effect and it put its processes in place under its regulations. The payments to the tipsters and whistleblowers are made to those who report information to the SEC that results in an SEC settlement or suit against the organization and resulting fines and penalties. In a report by the Wall Street Journal on the payouts under the program, from 2012-2017, the following data demonstrate the strengths and weaknesses of the program Dave Michaels, "SEC Whistleblower Payouts Slow," Wall Street Journal, August 6, 2018, p. A6:
Under the SEC process, the SEC publicizes cases that are settled or litigated and are eligible for awards. The eligible cases for whistleblower awards are those that have been settled or litigated with a minimum $1,000,000. fine. Those who have provided the SEC with information in those cases can then request a reward, which can range from 10-30% of the fines and penalties. For example, the three tipsters in the Bank of America case that involved misused customer cash and securities split $82 million.
The SEC acknowledged that it has a backlog and that the process is slow, particularly in those cases in which the role of the whistleblower is clear, as was the case with the three tipsters in the Bank of America case. However, the SEC believes that the number of claimants is indicative of the success of the program. The SEC now has a new processing plan for the claims that is in the public comment period. The plan would allow faster rejection for those whose claims are obviously invalid. The new plan will still include a right of appeal for claimants who are denied recovery by the SEC.
Why does the SEC need a process for evaluation of claims? Why is it not clear who made the reports?
What could companies do to make it easier for employees to report their concerns internally instead of going to the SEC?
What precautions are in place to prevent employees from avoiding internal reporting and just going straight to the SEC?
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