secOn February 28, 2017, in an Order almost entirely devoid of detail, the SEC announced that a whistleblower will receive 20% of any monetary sanctions collected in an enforcement action commenced as a result of the whistleblower’s tip. The SEC is giving this “reduced” award while acknowledging that the whistleblower (1) was “culpable” in the securities violation at issue, and (2) unreasonably delayed reporting the company’s wrongdoing to the agency.

Dodd-Frank prevents the SEC from awarding bounties to whistleblowers who are criminally convicted for conduct that is the same as, or related to, the conduct that is the subject of the information they provide. However, the SEC can grant (and has granted) awards to whistleblowers who are involved in the wrongdoing but are not criminally charged, even if the whistleblower is civilly charged.

In its February 28 Order, the SEC did not identify the whistleblower or the company on which he or she blew the whistle. Nor did the SEC provide details regarding the acts allegedly taken in violation of the law.  But the SEC did state that the whistleblower was culpable in the violation at issue and had unreasonably delayed reporting the wrongdoing.  However, the SEC gave no information regarding the whistleblower’s culpability or the extent of that culpability.

This is not the first time the SEC has awarded a bounty to a whistleblower who has engaged in activity with which the SEC took issue to some degree. For example, in 2014, the SEC issued its largest whistleblower award to date – more than $30 million – even though it found that the whistleblower “unreasonably” delayed reporting the violation. Also, in April 2016, the SEC issued an award but ordered that part of the award would offset a judgment against the whistleblower.

Companies remain concerned that the SEC’s whistleblower bounty program may allow culpable whistleblowers to recoup potentially massive awards. Efforts are underway, however, to change this dynamic.  In September 2016, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) introduced the Financial CHOICE Act (“Act”), which would, among other things, allow respondents to remove proceedings from the SEC’s administrative court to federal court.  H.R. Rep. No. 114-883, pt. 1, at 137. Although the bill died in Congress last year, it appears that Representative Hansarling may intend to reintroduce it.  In February 2017, he issued a memorandum outlining changes planned to the introduced version of the Act, one of which would prohibit “co-conspirators” from receiving an award under the SEC’s whistleblower bounty program.

Email this postTweet this postLike this postShare this post on LinkedIn
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 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.