SEC LogoIn its Annual Report on the Dodd-Frank Whistleblower Program (Report), the SEC has revealed that it has received 3,001 tips during its 2012 fiscal year (the first year of this program), and it paid out its first award to a whistleblower in 2012.

Pursuant to Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) the whistleblower bounty program directs the SEC to make monetary awards to individuals who voluntarily provide original information that leads to successful enforcement actions resulting in the imposition of monetary sanctions over $1 million.  Whistleblowers can receive awards of between 10% to 30% of the monetary sanctions collected (the percentage of the recovery is left to the SEC’s discretion).

Activities of the Office of the Whistleblower

During Fiscal Year 2012, the Office of the Whistleblower activities included:

  • Communicating with whistleblowers who sent tips and information, and claims for bounties;
  • Reviewing and processing applications for bounties;
  • Working to assist in the documentation of whistleblowers’ information and cooperation in anticipation of an eventual bounty claims;
  • Manning a whistleblower hotline for the public to call with questions about the program;
  • Reviewing and entering whistleblower tips received by mail and fax into the Commission’s Tips, Complaints, and Referrals System; and
  • Providing guidance to SEC staff regarding various aspects of the program.

Whistleblower Tips and the First Whistleblower Award

As noted, in Fiscal Year 2012, the SEC received 3,001 whistleblower tips, and has paid out one award.  More specifically, on August 21, 2012, a whistleblower who apparently had helped the SEC stop an ongoing multi-million dollar fraud received an award of 30% of the amount collected in the SEC’s enforcement action against perpetrators of the scheme—the maximum percentage payout allowed under Dodd-Frank.  The bounty recipient submitted a tip and then provided documents and other information that allowed the SEC to investigate the tip, which ultimately led to the filing of an emergency action in federal court to prevent the defendants from continuing their fraudulent scheme and deceiving additional victims.  The court ordered the perpetrators of the fraud to pay over $1 million in sanctions, of which approximately $150,000 had been collected by the SEC thus far.  The SEC has reported that it paid out a bounty of  “approximately $50,000” and disclosed that additional collections or increase in the sanctions ordered “will increase the amount paid to the whistleblower.”  The SEC Orders can be accessed here and here.

The SEC Received Tips From Around the Globe

The most common complaint categories reported by whistleblowers were Corporate Disclosures and Financials (18.2%), Offering Fraud (15.5%), and Manipulation (15.2%).  In addition, the Commission received whistleblower submissions from individuals in all 50 states, the District of Columbia and Puerto Rico, as well as 49 countries outside the United States.  The states with the most whistleblower complaints were California (435 complaints), New York (246 complaints), Florida (202 complaints) and Texas (159 complaints).  Of the complaints made outside the U.S., the countries with the most complaints were the United Kingdom (74 complaints), Canada (46 complaints), India (33 complaints), China (27 complaints), and Australia (21 complaints).

Lack of Transparency Concerning The Bounty

While, in its annual report, the SEC reported on the categories of complaints that were made and identified the geographic locations from which tips were reported, the SEC has revealed strikingly little information about the single award that was made.  Inquiring minds want to know:

  • What were the other specific factors that led the SEC to conclude that the maximum bounty percentage was warranted?
  • Did the whistleblower report internally first?
  • What was the particular type of fraud that was perpetrated or the location in which it occurred?
  • What was the monetary value of the fraud?

This lack of transparency is concerning for employers who want to encourage employees to report internally so that prompt investigations can be conducted and take account of all relevant data that will enable them to ferret out fraud and appropriately respond to whistleblower reports on a timely basis.

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Photo of Steven J. Pearlman Steven J. Pearlman

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular…

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular focus on defending companies against claims of employment discrimination, retaliation and harassment; whistleblower retaliation; restrictive covenant violations; theft of trade secrets; and wage-and-hour violations. He has successfully tried cases in multiple jurisdictions, and defended one of the largest Illinois-only class actions in the history of the U.S. District Court for the Northern District of Illinois. He also secured one of only a few ex parte seizures orders that have been issued under the Defend Trade Secrets Act, and obtained a world-wide injunction in federal litigation against a high-level executive who jumped ship to a competitor.

Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has testified in federal court. His investigations have involved complaints of sexual harassment involving C-suite officers; systemic violations of employment laws and company policies; and fraud, compliance failures and unethical conduct.

Steven was recognized as Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He is a Fellow of the College of Labor and Employment Lawyers.  Chambers describes Steven as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field.” Steven was 1 of 12 individuals selected by Compliance Week as a “Top Mind.” Earlier in his career, he was 1 of 5 U.S. lawyers selected by Law360 as a “Rising Star Under 40” in the area of employment law and 1 of “40 Illinois Attorneys Under Forty to Watch” selected by Law Bulletin Publishing Company. Steven is a Burton Award Winner (U.S. Library of Congress) for “Distinguished Legal Writing.”

Steven has served on Law360’s Employment Editorial Advisory Board and is a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is regularly quoted in leading publications such as The Wall Street Journal.

The U.S. Chamber of Commerce has engaged Steven to serve as lead counsel on amicus briefs to the U.S. Supreme Court and federal circuit courts of appeal. He was appointed to serve as a Special Assistant Attorney General for the State of Illinois in employment litigation matters. He has presented with the Solicitor of the DOL, the Acting Chair of the EEOC, an EEOC Commissioner, Legal Counsel to the EEOC and heads of the SEC, CFTC and OSHA whistleblower programs. He is also a member of the Sedona Conference, focusing on trade secret matters.

Photo of Lloyd B. Chinn Lloyd B. Chinn

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative…

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative agencies in New York and across the country. Lloyd’s practice ranges from litigating compensation disputes to defending whistleblower, discrimination and sexual harassment claims. Although he represents employers in a wide range of industries, including law, insurance, health care, consulting, media, education and technology, he focuses a substantial portion of his practice on the financial services sector. He has tried to final verdict or arbitration award substantial disputes in this area.

Due to Lloyd’s litigation experience, clients regularly turn to him for advice regarding the full range of employment matters, including terminations, whistleblower policy and procedure, reductions in force, employment agreements, and employment policies. For example, in the wake of the financial crisis, he has counseled a number of firms through reductions in force and related bonus and deferred compensation disputes. Lloyd has also been retained to conduct internal investigations of allegations of workplace misconduct, including claims leveled against senior executives.

Lloyd has represented global businesses in matters involving Sarbanes-Oxley and Dodd-Frank whistleblower claims. He has taken an active role in the American Bar Association on these issues, currently serving as Co-Chair of the Whistleblower subcommittee of the ABA Employee Rights and Responsibilities Committee. Lloyd has spoken on whistleblowing topics before a numerous organizations, including the American Bar Association, ALI-ABA, Association of the Bar of the City of New York, and New York University School of Law. He has testified twice before Congressional subcommittees regarding whistleblower legislation and has also published blog postings, articles and client alerts on a variety of topics in this area, including the Dodd-Frank Act’s whistleblower provisions. Lloyd is a co-editor of Proskauer’s Whistleblower Defense Blog, and he has been widely quoted by on whistleblower topics by a number of publications, including the New York Times, the Wall Street Journal, the National Law Journal and Law 360.

Lloyd has also become active in the International Bar Association, presenting on a variety of subjects, including: the #MeToo movement, the COVID-19 pandemic and employment law, and cross-border harmonization of employment provisions in transactions. Lloyd also hosts a quarterly roundtable discussion among financial services industry in-house employment lawyers. He has also published articles and given speeches on a variety of other employment-law topics, including non-solicitation provisions, FINRA arbitration rules, cross-border discovery, e-discovery, and the use of experts.

Photo of Rachel Fischer Rachel Fischer

Rachel S. Fischer is a senior counsel in the Labor & Employment Law Department.

Rachel represents employers in all types of employment-related disputes, including defending clients against claims of discrimination, harassment, retaliation, wrongful discharge, whistleblowing, breach of contract, and in wage and hour…

Rachel S. Fischer is a senior counsel in the Labor & Employment Law Department.

Rachel represents employers in all types of employment-related disputes, including defending clients against claims of discrimination, harassment, retaliation, wrongful discharge, whistleblowing, breach of contract, and in wage and hour matters. She represents employers in federal and state courts, arbitration tribunals, and before administrative agencies, and has litigated both single plaintiff and class action lawsuits. As an experienced trial lawyer, Rachel has successfully litigated numerous cases from complaint through jury verdict or arbitral award.

Rachel represents employers across a wide variety of industries, including banking and finance, law firms, media and entertainment, sports, and higher education.

Rachel also counsels clients on a broad range of employment law matters, including investigations, employee terminations and discipline, and employment policies and procedures.