SEC Awards Millions to Whistleblower for Aiding Ongoing Investigation

The SEC awarded more than $3.5 million to a company employee whose “tip bolstered an ongoing investigation with additional evidence of wrongdoing that strengthened the SEC’s case.” The Order stated that “the Claimant’s information caused Enforcement staff to focus on [redacted] when staff might otherwise not have done so, and this evidentiary development strengthened the Commission’s case by meaningfully increasing Enforcement staff’s leverage during the settlement negotiations. As such, Claimant’s information significantly contributed to the successful enforcement of the Covered Action within the meaning of Rule 21F-4(c)(2).”

Lofchie Comment: This case may be the first in which a whistleblower award was granted to an employee who did not produce evidence that initiated a case, but rather evidence that furthered an ongoing investigation of which the employee was aware. For those who find the concept of whistleblower payments troubling, at least in the case of whistleblowers who do not first raise the issue within their own organization, this case should raise the level of discomfort. In effect, the SEC offers a bounty to employees to provide unfavorable information about their employer without resolving the matter internally.

To even the playing field, perhaps private litigants should be able to offer payoffs to government employees who come forward with evidence pointing to weaknesses in the government’s evidence. Why should government activities be conducted without the guards against improper behavior that apply to private activities?

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