The Securities and Exchange Commission (SEC) has awarded a whistleblower $37 million for providing information that played an important role in a successful enforcement action. The whistleblower provided unique information previously unknown to the SEC, significantly aiding its investigation.
Whistleblower's Crucial Contribution
According to the regulator's statement, the unidentified individual conserved valuable SEC resources and time by meeting with the enforcement staff and pinpointing potential witnesses and documents. This contribution was important in the enforcement action, ultimately returning millions to affected investors.
Commenting about the award, Creola Kelly, the Chief of the SEC's Office of the Whistleblower, said: “Today's award illustrates the importance of the SEC's whistleblower program, as the whistleblower's information helped the agency return millions of dollars to harmed investors.”
Payments to whistleblowers reportedly come from an investor protection fund established by Congress, entirely financed by monetary sanctions collected from securities law violators. To be eligible for an award, whistleblowers must voluntarily provide original, timely, and credible information leading to a successful enforcement action.
The awards can range from 10 to 30% of the money collected, provided the monetary sanctions exceed $1 million. As mandated by the Dodd-Frank Act, the SEC maintains the confidentiality of whistleblowers, ensuring that their identities remain protected. This confidentiality is vital in encouraging more individuals to report potential securities law violations without fear of retaliation.
Previous SEC Enforcement Actions
Early this year, the SEC took action against 16 broker-dealers and financial advisers, including major players like Guggenheim and Oppenheimer. The regulator accused the companies of failing to maintain electronic communications, an offence that attracted combined civil penalties exceeding $81 million.
The regulator's investigations revealed a practice of using unapproved communication methods, referred to as off-channel communications, across all 16 firms. This included personal text messages discussing business matters and off-channel communications about investment recommendations and advice.
Meanwhile, the SEC has implemented regulations to boost investor protection in Special Purpose Acquisition Companies and their business combination transactions. Such transactions have gained significant traction as an alternative method for private companies to enter the public markets. Due to the challenges involved in these transactions, the SEC has emphasized the adoption of rules similar to those for traditional IPOs.
