Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 shortly after the financial crisis, commonly known as the Great Recession. The Act’s aim was to “promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail,’ to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.”
Dodd-Frank was a true sweeping overhaul of the U.S. financial regulatory system. Among numerous other things, the Act created new regulatory agencies and eliminated others, increased protections for investors, improved regulation of credit reporting agencies, and set new standards for mortgage reform and anti-predatory lending. One of the most important new provisions of Dodd-Frank, however, is Section 21F, which established a new “bounty” program and tasked the Securities and Exchange Commission (SEC) with administering it.
Section 21F of Dodd-Frank amended the Securities Exchange Act. Under the new amendment, whistleblowers who voluntarily provide the SEC with original information about violations of securities laws shall be awarded a share of between 10% and 30% of monetary sanctions ultimately imposed by the SEC when sanctions exceed $1 million.
The Act defines a whistleblower as “any individual who provides … information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.” A whistleblower can make a report anonymously to the SEC under section 922, but in such cases an attorney must represent the whistleblower in submitting the information.
In fiscal year 2019, the SEC reported receiving 5,212 tips, with California, Pennsylvania, New York, Texas, and Florida yielding the highest number of whistleblower tips domestically. The SEC also received whistleblower submissions from individuals in 70 foreign countries (most from Canada, United Kingdom, and Germany).
Whistleblowers can submit tips online, by mail, or by fax, though the SEC strongly recommends using the online portal. After a whistleblower submits a tip, the SEC will decide if the tip includes high-quality information that warrant additional government resources. If so, the SEC will initiate an enforcement investigation. The SEC gives priority to tips that are specific, credible, timely, and that are accompanied by corroborating documentary evidence. These kinds of tips are more likely to cause the SEC to initiate an investigation. If an investigation commences, the investigators may ask to interview the whistleblower if they need additional information or documents. An SEC investigation, however, is strictly confidential, meaning that the whistleblower will not be notified of the progress of the investigation, which often takes years.
Not all investigations will result in an enforcement action, and not all actions will result in over $1 million in monetary sanctions, which is the required threshold for an award. If an enforcement action results in monetary sanctions exceeding $1 million, the SEC will post a notice of these sanctions on its website. The whistleblower will then have 90 days to apply for an award.
The amount of the award, which ranges from 10% to 30% of the total monetary sanctions, is determined at the SEC’s discretion. Most of the Commission’s awards have been at or close to 30%. The SEC may reduce the award if it determines that the whistleblower participated in or was involved with the legal violation that he reported or if the whistleblower’s report was unreasonably delayed.
Since the program began in 2010, the SEC has awarded over $500 million to 83 individuals. $60 million of these awards were made in FY 2019 alone. The identities of the whistleblowers receiving awards remain confidential by law.
If you believe you have information regarding violations of securities laws, you should consult with an experienced Dallas Employment whistleblower attorney.