On July 27, 2017, the SEC announced that it was paying a $1.7 million bounty award to a whistleblower, even though the whistleblower: (1) had some culpability in the fraud; (2) unreasonably delayed reporting the fraud; and (3) failed to comply with a Dodd-Frank rule requiring whistleblowers to submit inside information in writing in certain circumstances. The SEC did not provide the identity of the whistleblower or the company at issue.

In its Order, the SEC wrote that in determining an appropriate award percentage, it balanced the fact that the whistleblower alerted it to a serious multi-year fraud that would have otherwise been difficult to detect with the whistleblower’s unreasonable delay and culpability. The SEC noted that the whistleblower’s unreasonable delay was somewhat mitigated because he first alerted the SEC to the fraud before the whistleblower program and the protections that accompany it were established by Dodd-Frank. The SEC also stated that it did not consider at all the whistleblower’s failure to submit his information in writing because he was actively working with the SEC before the enactment of Dodd-Frank and, once the Act was passed, he provided the information in the format the SEC requested.

The SEC also noted that the whistleblower “bears some, albeit limited, culpability.” While 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, the SEC currently is able to grant awards to whistleblowers who are involved in the wrongdoing but are not criminally charged.

However, change may be around the corner. On June 8, 2017, the U.S. House of Representatives passed the Financial CHOICE Act of 2017. The CHOICE Act would prohibit culpable whistleblowers from receiving any monetary award under Dodd-Frank’s whistleblower bounty program. More specifically, it would prohibit the SEC from issuing an award “to any whistleblower who is responsible for, or complicit in, the violation of the securities laws for which the whistleblower provided information to the Commission.” H.R.10 – Financial CHOICE Act of 2017, 115th Congress (2017–18) § 828. It provides that “a person is responsible for, or complicit in, a violation of the securities laws if, with the intent to promote or assist the violation, the person—(A) procures, induces, or causes another person to commit the offense; (B) aids or abets another person in committing the offense; or (C) having a duty to prevent the violation, fails to make an effort the person is required to make.”  Id.  Thus, while the whistleblower here was handed a $1.7 million award despite his culpability, he would have been denied an award under the CHOICE Act.

Based on the $1.7 million award here, as well as other recent awards, it appears that the SEC’s whistleblower bounty program will remain active under the Trump administration.

Posted in Dodd Frank, SEC
Tags: Dodd-Frank, SEC, whistleblower
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Photo of Steven J. Pearlman Steven J. Pearlman

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

Employment, Whistleblower, Restrictive Covenant and Trade Secret Practice.…

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

Employment, Whistleblower, Restrictive Covenant and Trade Secret Practice. Steven’s national practice focuses on defending companies in federal and state courts and arbitration against claims of: discrimination, retaliation and harassment, including claims brought by high-level executives; whistleblower retaliation; restrictive covenant violations; theft of trade secrets; and wage-and-hour violations (including class, collective and PAGA actions).

Illustrating his versatility, Steven has successfully handled bench and jury trials in multiple jurisdictions (e.g., Illinois, California, Florida and Texas); defended one of the largest Illinois-only class actions in the history of the federal courts in Chicago; and prevailed following his oral arguments before the Seventh Circuit and state appellate courts. Steven brings his litigation experience to bear in counseling clients to minimize risk and avoid or prepare for success in litigation.

Investigations. 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.

Thought Leadership and Accolades. Steven was named Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He was also named as One of the Top 10 Impactful Labor & Employment Lawyers in Illinois for 2023 by Business Today. 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.” Chambers also reports that “He is someone who can navigate the twists and turns of litigation without difficulty. Steven is great with brief-writing, crafting arguments, and making sure the client is always happy.”

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 was appointed to Law360’s Employment Editorial Advisory Board and selected as a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is often 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.

In 2024, Steven received the Excellence in Pro Bono Service Award from the United States District Court for the Northern District of Illinois and the Chicago Chapter of the Federal Bar Association.

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