The U.S. Securities and Exchange Commission experienced a banner year with its whistleblower program in fiscal 2014, awarding more tipsters than all previous years combined and issuing a record-setting $30 million to one individual who reported fraud.
The SEC said in a report to Congress this week that it authorized a total of nine monetary awards this year to people who provided original information about violations of federal securities laws. The agency had previously handed out a combined four awards since the program began in 2011.
The commission said it also brought its first-ever enforcement action for retaliation this year, ordering Paradigm Capital Management to pay $2.2 million for allegedly punishing the firm’s head trader after he reported prohibited transactions.
Additionally, the SEC said it filed legal briefs in several private retaliation cases pending in federal courts.
The agency’s whistleblower protection program allows the commission to pay for leads that result in successful enforcement actions that bring in at least $1 million. The awards range between 10 percent and 30 percent of the funds collected through a case, with the SEC basing the amounts on the significance of information and the level of assistance from each individual.
In some instances, the commission has divided the awards between several whistleblowers. For example, three employees who reported a violation last year received 15 percent, 10 percent and 5 percent of the sanctions that the government collected through its case.
Congress established a special fund to ensure that whistleblower payments do not diminish the amount of recovery for the victims of securities-law violations. This year, the fund included $439 million, but only $2 million went out to informants, because most of them could be paid from sanction revenue without affecting victims.
The record-setting $30 million award this year went to an informant from a foreign country. It was the fourth time the SEC has made such a payment to a whistleblower from outside the United States.
“We hope that awards like this one will incentivize the company and industry insiders, or others who may have knowledge of possible federal securities law violations, both in the U.S. and abroad, to come forward and report their information promptly to the commission,” the SEC said in its report.
In a separate case this year, the commission awarded more than $400,000 to a whistleblower who reported fraud after the company failed to address the issue internally. The SEC said the outcome drove home an “important message” that firms must act upon credible allegations of potential wrongdoing from employees.
The commission said it received 3,620 whistleblower tips in 2014, representing an increase of 20 percent compared to the previous year. The SEC does not release the names of individuals who provide information about potential violations.