What is the SEC Whistleblower Process to Obtain an SEC Whistleblower Award?
The SEC whistleblower process is lengthy and complex. This article details the 10 steps in the SEC whistleblower process to obtain an award.
An experienced SEC whistleblower attorney can skillfully guide you through the SEC whistleblower process, increasing the likelihood of receiving and maximizing an SEC whistleblower award. For more information about how we have helped our clients obtain multi-million dollar SEC whistleblower awards, see our article: How the Best SEC Whistleblower Law Firms Advocate for SEC Whistleblowers.
In conjunction with our courageous clients, our SEC whistleblower lawyers have helped the SEC halt multi-million dollar investment schemes, expose violations at large publicly traded companies, and return funds to defrauded investors.
Recently the Association of Certified Fraud Examiners published a profile of SEC whistleblower lawyer Matt Stock’s success working with whistleblowers to fight fraud:
SEC Whistleblower Program and Awards
Under the SEC Whistleblower Program, the SEC is required to pay awards to eligible whistleblowers who voluntarily provide the SEC with original information that leads to a successful enforcement action resulting in monetary sanctions in excess of $1 million.
If you have information that may qualify for an SEC whistleblower award, contact the Director of Zuckerman Law’s SEC whistleblower practice at [email protected] or call our SEC whistleblower attorneys at (202) 930-5901 or (202) 262-8959.
All inquiries to our firm are kept confidential.
We focus on providing the SEC high-quality TCR submissions — ones that are specific, credible and timely—are most likely to lead to a successful enforcement action.
Tips to Successfully Navigate the SEC Whistleblower Process
While the SEC Whistleblower Program has proven successful at exposing and halting violations of the federal securities laws, the process is complex and many whistleblowers have been denied awards for failing to follow the SEC whistleblower rules. Out of the more than 52,000 tips filed since August 2011, the SEC Office of the Whistleblower has paid awards to 230 whistleblowers.
10-Step Summary of the SEC Whistleblower Process
Below is a 10-step summary of the SEC whistleblower process. Please note this is a general overview that does not address a multitude of considerations that whistleblowers and their attorneys should consider during the process. Whistleblowers should contact an experienced SEC whistleblower attorney for a detailed, fact-specific analysis of the process as it relates to their claim and potential whistleblower award. Click below to hear SEC whistleblower lawyer Matt Stock’s tips for SEC whistleblowers:
Step 1. Submit a Tip to the SEC
To qualify for an award under the SEC Whistleblower Program, the SEC requires eligible whistleblowers and/or their attorneys (whistleblowers may file anonymously if represented by an attorney) to submit tips regarding violations of the federal securities law in one of two ways:
- By submitting a tip electronically through the SEC’s Tips, Complaints and Referrals (TCR) Portal; or
- By mailing or faxing a Form TCR to the SEC Office of the Whistleblower.
Since 2011, the SEC Office of the Whistleblower has received more than 52,000 tips. In FY 2021 alone, the SEC received more than 12,000 tips. As the SEC has limited resources to review all submissions, it is imperative that SEC whistleblowers and their attorneys frame their tips in a way that will be more likely to get the SEC’s attention. According to the SEC’s FY 2020 Annual Report to Congress:
In general, whistleblower tips that are specific, credible, and timely, and which are accompanied by corroborating documentary evidence, are more likely to be forwarded to investigative staff for further analysis or investigation. For instance, if the tip identifies individuals involved in the scheme, provides examples of particular fraudulent transactions, or points to non-public materials evidencing the fraud, the tip is more likely to be assigned to Enforcement staff for investigation. Tips that make blanket assertions or general inferences based on market events are less likely to be forwarded to or investigated by Enforcement staff.
In addition, and as a practical matter, whistleblowers are more likely to have their tips reviewed and acted on if they have an experienced SEC whistleblower lawyer advocating for them. For more information on submitting a TCR to the SEC, see our article: 5 Tips for SEC Whistleblowers and Lessons Learned from SEC Whistleblower Awards.
Step 2. Tip Analysis/Investigation
The SEC’s Office of Market Intelligence (OMI) evaluates incoming whistleblower tips, focusing on TCRs that contain specific, credible, and timely information. If OMI determines that a TCR warrants further investigation, OMI will assign the tip to one of the SEC’s regional offices, a specialty unit, or to an Enforcement group in the SEC’s Home Office. TCRs that relate to an existing investigation are forwarded to the staff working on the matter.
At this stage in the SEC whistleblower process, the SEC will frequently request to interview whistleblowers and/or their attorneys to, among other things, clarify aspects of the TCR, discuss evidence, and identify potential witnesses. After interviews, whistleblowers and their attorneys will often provide the SEC with additional information and materials to support and bolster their initial TCR.
As a matter of policy, the SEC conducts its investigations on a confidential basis. The purpose of this is to:
- protect the integrity of any investigation from premature disclosure; and
- protect the privacy of the persons involved in an investigation.
Accordingly, there may be very limited information that the SEC can share with you or your attorney regarding what action, if any, the SEC has taken in response to your TCR.
Step 3. SEC Enforcement Action
As of FY 2020, the SEC was tracking more than 1,100 matters in which a whistleblower’s TCR caused a Matter Under Inquiry (MUI) or investigation to open, or has been forwarded to Enforcement staff for review and consideration in connection with an ongoing investigation. Some of these matters may result in successful enforcement actions with total monetary sanctions in excess of the $1 million threshold.
Step 4. Noticed of Covered Actions Posted
At the end of each month, the Office of the Whistleblower posts Notices of Covered Action for each SEC action where a final judgment or order resulted in monetary sanctions exceeding $1 million. Whistleblowers who submitted TCRs that led to the successful enforcement actions are eligible to apply for awards at this time.
Step 5. Submit an Application for an Award
Once a Notice of Covered Action is posted, whistleblowers have 90 calendar days to apply for an award by submitting a completed Form WB-APP to the SEC Office of the Whistleblower. In the Form WB-APP, whistleblowers and their attorneys are required to, among other things, explain why they are entitled to an award in connection with their TCR. Experienced SEC whistleblower attorneys will also provide a detailed analysis of the significant factors that the SEC considers when determining whether to increase or decrease the percentage of a whistleblower’s awards.
Step 6. Preliminary Award Determinations Issued
After a whistleblower applies for an award, the SEC Office of the Whistleblower’s Claims Review Staff will review the application in accordance with the rules of the program and make a preliminary award determination. This determination will recommend whether to issue an award and the proposed award amount. The Claims Review Staff may base this determination on:
- The Form TCR;
- The Form WB-APP;
- Sworn declarations from the SEC staff that worked on the enforcement action;
- The enforcement action’s orders and pleadings; and
- Other appropriate materials identified in 17 C.F.R. § 240.21F-12(a).
As detailed in a recent WSJ article, it currently takes the SEC more than 2 years to make this preliminary determination. However, the SEC has adopted rule amendments in September 2020 that will significantly speed up this process in the future.
For more information on the timing of SEC whistleblower claims, see our FAQ: How long does it take to receive an SEC whistleblower award?
Step 7. Contesting a Preliminary Determination
After the Claims Review Staff makes its preliminary determination, it will send the whistleblower a written notification of the determination and an explanation of the whistleblower’s rights in the awards claims process. At this point, the whistleblower will have 30 calendar days to:
- Request the record that was used by the Claims Review Staff in making the preliminary determination; and/or
- Request a meeting with the SEC Whistleblower Office staff to discuss the preliminary determination (however, such meetings are not required and the office may decline the request).
If the whistleblower decides to contest a preliminary determination, he or she must appeal the determination within 60 calendar days of the later of: (i) the date of the preliminary award determination, or (ii) the date when the SEC Whistleblower Office made materials available for review.
Step 8. Final Orders Issued/Resolution of Appeals
If a whistleblower appeals the SEC’s preliminary determination, the Claims Review Staff will consider the whistleblower’s response, along with any supporting documentation provided, and will make its proposed final determination.
After issuing a proposed final determination, any Commissioner can review the proposed final determination within 30 days. If no Commissioner requests a review within the 30-day period, then the proposed final determination will because the final order of the Commission.
If a whistleblower chooses not to appeal a preliminary determination, or fails to appeal in a timely manner, the preliminary determination will become the SEC’s final order (except where the preliminary determination recommends granting an award, in which case it will become a proposed final determination subject to the above-mentioned 30-day Commissioner approval).
Notably, a whistleblower’s failure to contest a preliminary determination will constitute a failure to exhaust administrative remedies, and the whistleblower will be prohibited from appealing the determination to a United States Court of Appeals.
Step 9. Awards Issued from Investor Protection Fund
Once the SEC issues a final order granting an award, all payments are made out of an investor protection fund, which was established pursuant to Section 21F(g) of the Dodd-Frank Act to fund the payment of awards to whistleblowers. The investor protection fund is financed entirely through monetary sanctions paid to the SEC by securities law violators, and no money is taken or withheld from harmed investors to pay whistleblower awards. See 15 U.S.C. § 78u-6(g)(1)-(4). See some of the SEC whistleblower cases that have resulted in multi-million dollar awards.
Step 10. Appealing the SEC’s Final Orders
If the SEC denies an award to a whistleblower, the whistleblower may file an appeal in an appropriate United States Court of Appeals (either the United States Court of Appeals for the District of Columbia Circuit, or to the circuit where the aggrieved person resides or has his or her principal place of business) within 30 days of the decision being issued.
If the SEC issues an award to the whistleblower of between 10 to 30 percent of the monetary actions collected in the action, the whistleblower may not appeal the award determination if the award was made in accordance with subsection (b). See Rule 21F-13.
Tips to Qualify for an SEC Whistleblower Award
SEC Whistleblower Lawyers Helping Whistleblowers Successfully Navigate the SEC Whistleblower Process
As discussed in our articles, the SEC whistleblower program has become a very effective enforcement tool for the SEC. But very few whistleblowers have received awards, which underscores the importance of having experienced counsel represent a whistleblower effectively at the SEC.
- MarketWatch: More than 33,000 tips, $2.5 billion in financial remedies and $500 million in awards to investors — the SEC’s whistleblower program turns 10 years old today
- Going Concern: Here Are 6 Reasons Why the SEC Whistleblower Program Is Successful
- National Law Review: 5 Ways that Experienced SEC Whistleblower Law Firms Can Effectively Advocate for Whistleblowers
- D&O Diary: How the SEC Whistleblower Program Has Changed Corporate Compliance and SEC Enforcement
- Forbes: One Billion Reasons Why The SEC Whistleblower-Reward Program Is Effective
Whistleblower Protections for SEC Whistleblowers
Click here to learn more about anti-retaliation protections for SEC whistleblowers under the Dodd-Frank Act and Sarbanes-Oxley Act.
What Damages Can Whistleblowers Recover in Dodd-Frank Whistleblower Retaliation Cases?