Reporting Violations of Federal Securities to the SEC Whistleblower Program

The SEC Whistleblower Program incentivizes individuals to report violations of federal securities law to the SEC. A whistleblower is an individual or a group of individuals who provides original information to the SEC related to a possible violation of federal securities law occurring in the past, present, or future. This information must be provided voluntarily.

To receive an award, the information must lead to a successful SEC action that results in monetary sanctions exceeding $1 million. The SEC grants to eligible whistleblowers awards ranging between 10% and 30% of monetary sanctions collected as a result of the information provided.

Types of Activity

The SEC seeks to award information that leads to a successful investigation into violations of federal securities law.

Some examples of conduct that may violate these laws include, among others:

  • Ponzi schemes;
  • Theft or misappropriation of funds or securities;
  • Security price manipulation;
  • Insider trading; and
  • False or misleading statements about a company.

Process for Applying

The SEC recommends that whistleblowers submit tips, anonymously or not, through the online portal called the TCR System. Alternatively, a hard copy of the Form TCR may be used.

Often, whistleblowers will want to maintain anonymity in reporting potential violations. Tips can be submitted anonymously, but the whistleblower must have an attorney represent the whistleblower and submit the information through the TCR System or Form TCR to be eligible for an award.

Once the SEC receives a tip, it may begin an investigation. When the investigation leads to an enforcement action exceeding $1 million in sanctions, the SEC posts a Notice of Covered Action (NoCA) on the SEC website. Alternatively, the SEC may inform the whistleblower or attorney directly of the opportunity to apply for an award. Once a NoCA is posted, a whistleblower or his attorney must submit Form WB-APP within 90 days via mail. Then, a decision will be made as to whether an award will be granted.

Factors for Calculating the Award

When the SEC determines what amount to award a whistleblower, it considers a number of factors. Factors that support increasing award percentages include:

  • The significance of the information to the success of proceedings brought against the violators
  • The extent of the assistance provided to the SEC’s investigation
  • The importance to the SEC of using awards to deter further violations of this type
  • The use of internal reporting within the company in addition to external reporting to the SEC

Factors that support decreasing award percentages include:

  • Participating in or culpability in the securities law violation reported
  • Unreasonable delay in reporting the violation
  • Interference in internal reporting systems through, for example, making false statements that hampered internal investigations

Protection from Retaliation

Whistleblowers have extensive protection against retaliation and interference in their ability to report possible securities law violations. To protect against retaliation, the SEC may take legal action against employers who retaliate against employers, whether through discharge, demotion, suspension, harassment, or other forms of discrimination. Congress has also created a private right of action to file for whistleblowers to file a retaliation complaint in federal court. Further, when another party, employer or not, prohibits a whistleblower from contacting the SEC to report a possible securities law violation, the SEC may take direct enforcement action against the interfering party.

Do you have information you would like to report to the SEC? Contact us today to schedule your free and confidential consultation with a Birmingham whistleblower attorney.