SEC Whistleblower Reward Program: Who is an “eligible” whistleblower for an award under the program?
Most individuals, regardless of citizenship, are “eligible” whistleblowers if they voluntarily provide the SEC with original information about a possible violation of the federal securities laws that has occurred, is ongoing, or is about to occur.
The information provided must lead to a successful SEC action that results in monetary sanctions exceeding $1 million. Companies or organizations cannot qualify as whistleblowers. Furthermore, individuals are not required to be employees of a company to submit information about that company. An individual can qualify for an award and report anonymously if they are represented by counsel.
Since the inception of the SEC Whistleblower Program, the SEC has paid more than $1.3 billion in awards to whistleblowers. The largest SEC whistleblower awardsto date are $114 million, $110 million, and $50 million. See a summary of the SEC whistleblower cases that have resulted in large awards.
We have secured awards for seven whistleblowers, and the courageous whistleblowers that we represent have helped stop more than $1 billion in Ponzi schemes and other fraudulent investment schemes.
Contact the SEC whistleblower attorneysat Zuckerman Law to learn how we have achieved successful outcomes for whistleblowers at the SEC.
Different eligibility rules apply to:
officers, directors, trustees, or partners of an entity, if another person informed them of allegations of misconduct, or if they learned the information in connection with the entity’s processes for identifying, reporting, and addressing possible violations of law;
those employed by, or otherwise associated with, a firm retained to conduct an inquiry or investigation into possible violations of law; and
employees of, and other persons associated with, a public accounting firm, if they obtained the information through the performance of an engagement required of an independent public accountant under the federal securities laws, and that information related to a violation by the engagement client or the client’s directors, officers, or other employees.
Any of those individuals may be eligible for an SEC whistleblower award if:
his or her disclosure is necessary to prevent conduct that is likely to cause substantial injury to the financial interest or property of the entity or investors;
the entity is engaging in conduct that will impede an investigation of the misconduct; or
at least 120 days have elapsed since either:
the whistleblower provided the information to the entity’s audit committee, chief legal officer, or chief compliance officer (or their equivalents), or to his or her supervisor; or
the whistleblower received the information, if he or she received it under circumstances indicating that the entity’s audit committee, chief legal officer, or chief compliance officer (or their equivalents), or the whistleblower’s supervisor was already aware of the information.
If you have original information that you would like to report to the SEC Whistleblower Office, contact the Director of our SEC whistleblower practice at mstock@zuckermanlaw.com or call our leading SEC whistleblower lawyers at (202) 930-5901 or (202) 262-8959. All inquiries are confidential.
The law firm’s SEC whistleblower attorneys will work to quickly provide SEC whistleblowers with the highest-quality representation. In conjunction with our courageous clients, we have helped the SEC halt multi-million dollar investment schemes, expose violations at large publicly traded companies and return funds to defrauded investors.
To learn more about the SEC Whistleblower Program, download Zuckerman Law’s eBook: SEC Whistleblower Program: Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award:
Tips for SEC Whistleblowers to Obtain SEC Whistleblower Awards
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Qualifying for an SEC Whistleblower Award
SEC Whistleblower Award Eligibility
SEC Whistleblower Awards Limited to “Voluntary” Whistleblowing
Rule 21F-4(a) provides that a submission of information is deemed to have been made “voluntarily” if the whistleblower makes his or her submission before a request, inquiry, or demand that relates to the subject matter of the submission is directed to the whistleblower or anyone representing the whistleblower (such as an attorney) (i) By the Commission; (ii) in connection with an investigation, inspection, or examination by the PCAOB or any SRO; or (iii) in connection with an investigation by Congress, any other authority of the Federal government, or a state Attorney General or securities regulatory authority.
In other words, a whistleblower award should not be available to an individual who makes a submission after first being questioned about a matter by SEC Staff acting pursuant to any of the SEC’s investigative or regulatory authorities. Only an investigative request made by the other designated authorities will trigger application of the rule, except that a request made in connection with an examination or inspection, as well as an investigative request, by staff of the PCAOB or an SRO will also render a whistleblower’s subsequent submission relating to the same subject matter not “voluntary.”
The May 2011 SEC release (Release No. 34-64545) adopting the rules governing theSEC Whistleblower Program (and subsequently amended in September 2020) clarifies key aspects of the voluntariness requirement:
A whistleblower who receives a request, inquiry, or demand as described in paragraph (1) first will not be able to make a subsequent “voluntary” submission of information that relates to the subject matter of the request, inquiry, or demand, even if a response is not compelled by subpoena or other applicable law. This approach strikes an appropriate balance between, on the one hand, permitting any submission to be considered “voluntary” as long as it is not compelled, and, on the other hand, precluding a submission from being treated as “voluntary” whenever a whistleblower may have become “aware of” an investigation or other inquiry covered by the rule, regardless of whether the relevant authority contacted the whistleblower for information. A standard based on the receipt of a subpoena would go too far in permitting individuals to claim whistleblower awards even after being directly asked about conduct by staff of the Commission or other authorities. We do not believe either that Congress intended this result, or that it is suggested by existing law. Conversely, a rule that prohibited a whistleblower from acting “voluntarily” any time the whistleblower became aware of an investigation or other inquiry covered by the rule is overly inclusive because the subject of the inquiry may not be clear to potential whistleblowers with valuable information or these potential whistleblowers may not be known to the Commission. Accordingly, such an interpretation of “voluntary” is likely to have a negative impact on our Enforcement program by reducing the opportunities for us to receive high-quality, valuable information in many circumstances. Such a rule would create the difficult problem of determining whether a whistleblower was actually aware of an investigation or other inquiry before he or she came forward.
A whistleblower can make a “voluntary” submission after being contacted for information in the course of an internal investigation. If a whistleblower took steps to undermine the integrity of an internal compliance system or process, the SEC will consider that conduct as a factor that may decrease the amount of any award.
A whistleblower submission will not be deemed “voluntary” if made after the SEC or another of the designated authorities have already contacted the whistleblower (or his or her representative) with an investigative or other covered request, inquiry, or demand that “relates to the subject matter” of the submission. This language is intended to provide clearer guidance than use of the word “relevant” in the proposed rule. The determination of whether an inquiry “relates to the subject matter” of a whistleblower’s submission will depend on the nature and scope of the inquiry and on the facts and circumstances of each case. Generally speaking, however, the SEC will consider this test to be met— and therefore the whistleblower’s submission not to be “voluntary”—even if the submission provides more information than was specifically requested, if it only describes additional instances of the same or similar conduct, provides additional details, or describes other conduct that is closely related as part of a single scheme. For example, if SEC staff sends an individual an investigative request relating to a possible fraudulent accounting practice, the SEC would ordinarily not expect to treat as “voluntary” for purposes of Rule 21F-4(a) a subsequent whistleblower submission from the same individual that describes additional instances of the same practice, or a different but related practice as part of an overall earnings manipulation scheme.However, the individual could still make a “voluntary” submission that described other, unrelated violations (e.g., Foreign Corrupt Practices Act violations).
Rule 21F-4(a)(3) provides that a whistleblower cannot “voluntarily” submit information if the whistleblower is required to report his or her original information to the Commission as a result of a pre-existing legal duty, a contractual duty that is owed to the Commission or to one of the other authorities set forth in paragraph (1), or a duty that arises out of a judicial or administrative order. A duty to report information only to an authority other than the Commission does not result in the exclusion of the whistleblower.
The SEC would not consider as “voluntary” disclosures made by an individual who has entered into a cooperation or similar agreement with another authority, such as the Department of Justice, which requires the individual to cooperate with or provide information to the Commission, or more generally to government agencies. Further, the requirement that the contractual duty be owed to the Commission or to one of the other authorities means that whistleblowers will not be precluded from award eligibility if they are subject to a contractual duty to report information to the Commission because of an agreement with a third party. In other words, submissions from such whistleblowers will be treated as “voluntary,” assuming that the other requirements of this rule are satisfied. This clarification responds to the concerns of some commenters that employers should not be able to preclude their employees from whistleblower eligibility by generally requiring all employees to enter into agreements that they will report evidence of securities violations directly to the Commission.
A whistleblower submission will not be treated as “voluntary” if the whistleblower had a duty arising out of a judicial or administrative order to report the information to the Commission. This language covers persons such as independent monitors or consultants who may be appointed or retained as a result of Commission or other proceedings with a requirement that they report their findings, conclusions, or other information to the Commission.
How the SEC Determines Whether an “Action” Results in Monetary Sanction of at Least $1 Million
The May 2011 SEC release (Release No. 34-64545) adopting the rules governing the SEC Whistleblower Program explains what comprises an “action” for the purpose of determining award eligibility:
Rule 21F-4(d) defines the term “action” generally to mean a single captioned judicial or administrative proceeding brought by the Commission. However, the rule also identifies two exceptions to this general definition. First, an “action” will constitute two or more Commission proceedings arising from the same nucleus of operative facts for purposes of making an award under Rule 21F-10. Second, for purposes making payments under Rule 21F-14 on a Commission action for which we have already made an award, we will treat as part of that same action any subsequent Commission proceeding that, individually, results in a monetary sanction of $1,000,000 or less, and that arises out of the same nucleus of operative facts.
The same-nucleus-of-operative-facts test is a well-established legal standard that is satisfied where two proceedings, although brought separately, share such a close factual basis that the proceedings might logically have been brought together in one proceeding. In exercising our discretion and deciding whether two or more proceedings arise from the same nucleus of operative facts, we intend to apply a flexible approach and will consider a number of factors, including whether the separate proceedings involve the same or similar: (1) Parties (whether named as defendants/respondents or simply named within the complaint or order); (2) factual allegations; (3) alleged violations of the Federal securities laws; or (4) transactions or occurrences.
Paragraph (d)(1) allows us to treat together as a covered action for purposes of making an award under Rule 21F-10, two or more administrative or judicial proceedings brought by the Commission if those proceedings arise from the same nucleus of operative facts. So, for example, if we bring multiple proceedings during the course of an investigation, and these proceedings involve the same nucleus of operative facts but none yields a monetary sanction in excess of $1,000,000, we may nonetheless issue a Notice of Covered Action and treat these proceedings as one covered action for purposes of making an award under Rule 21F-10. Thus, if a qualified whistleblower provided us with original information that led to the successful enforcement of any one of the proceedings, we will make an award to that whistleblower for 10 to 30 percent of the total monetary sanctions collected in those proceedings.
Similarly, we will treat together a proceeding that yielded a monetary sanction of $1,000,000 or less with a Commission proceeding that alone would qualify as a covered action if the two proceedings involve the same nucleus of operative facts. Here again, we believe this is consistent with Congress’s intent that qualified whistleblowers who provide us with original information that leads to enforcement proceedings yielding monetary sanctions in excess of $1,000,000 should receive an award payout that fully reflects the monetary sanctions collected.
Paragraph (d)(1) also authorizes us to treat as a covered action under Rule 21F-10 two or more Commission proceedings that otherwise might individually qualify as covered actions where these proceedings involve the same nucleus of operative facts. We believe that treating these proceedings together under the Rule 21F-10 procedures as one covered action, rather than processing them as separate covered actions, will help make the awards procedures more efficient and user-friendly, thereby further encouraging whistleblowers to come forward.
Finally, paragraph (d)(2) provides that, for purposes of determining the payment on an award pursuant to Rule 21F-14, we will deem as part of the Commission action upon which the award was based any subsequent Commission proceeding that, individually, results in a monetary sanction of $1,000,000 or less, and that arises out of the same nucleus of operative facts. For example, if we make a whistleblower award for a covered action brought against an entity, but thereafter bring a separate proceeding against the officer who was responsible for the entity’s conduct in which we do not recover in excess of $1,000,000, we may in our discretion determine to treat the second proceeding as part of the previous covered action and provide a payment based on the total of the two proceedings.
How to Report Information to the SEC and Qualify for an SEC Whistleblower Award
We have substantial experience investigating securities fraud schemes and preparing effective submissions to the SEC concerning a wide range of federal securities violations, including:
We have assembled a team of leading whistleblower lawyers to provide top-notch representation to SEC whistleblowers. Recently Washingtonian magazine named two of our attorneys top whistleblower lawyers. U.S. News and Best Lawyers® have named Zuckerman Law a Tier 1 firm in Litigation – Labor and Employment in the Washington DC metropolitan area
Matt Stock is a Certified Public Accountant, Certified Fraud Examiner and former KPMG external auditor. As an auditor, Mr. Stock developed an expertise in financial statement analysis, internal controls testing and fraud recognition, and he uses his auditing experience to help whistleblowers investigate and disclose complex financial frauds to the government and obtain damages for retaliation. He is the lead author of SEC Whistleblower Program: Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award.
Jason Zuckerman was recognized by Washingtonian magazine as a “Top Whistleblower Lawyer” in 2017, 2015, 2009, and 2007 selected by his peers to be included in The Best Lawyers in America® in the category of employment law (2011-2017), and selected by his peers to be listed in SuperLawyers(2012 and 2015-2017) in the category of labor and employment law. is rated 10 out of 10 by Avvo, based largely on client reviews, and rated AV Preeminent® by Martindale-Hubbell based on peer reviews.
