Securities And Exchange Commission Video Walks Informants Through Whistleblower Process

August 13, 2012

Blowing the whistle for dollars -- a new cottage industry begins

This is an update of a "Street Sweeper" column from August 12, 2011.

As many "Street Sweeper" readers know, I often write about whistleblowers and their cases; moreover, I have represented such men and women in my law practice and am presently assisting individuals in relating their information to various regulators. Please feel free to contact me in strict confidence concerning your whistleblower case.

Without question, many recent fraud cases were first broken by whistleblowers - although in some high-profile crimes such as Madoff, it seems that despite the best efforts of those sounding the alarm, Wall Streets regulators failed to timely respond. Sometimes it's a matter of perseverance through voicemails and emails; other times, sadly, it appears that the bureaucracy is structured to frustrate the timely processing of such warnings. These delays cause increased financial carnage with the attendant destruction of many lives.

Personally, I remain on the sidelines as to the effectiveness of the SEC's Office of the Whistleblowerand harbor similar reservations about the same facility at the Financial Industry Regulatory Authority (ably headed by Cameron Funkhouser).  While some of my referrals to those regulators have yielded promising results, the experience is not uniform and the level of feedback has not proven fully satisfactory.

Given the increasing speed with which markets deteriorate and frauds advance, regulators charged with the intake of whistleblower claims need to  timely reply to the informant or his/her legal counsel with some substantive feedback. Too often, what regulators cite to as the celerity of their intake is little more than a computer-generated letter of acknowledgment followed by often infuriating replies that the regulator won't affirm or deny the existence of any investigation and that such matters are routinely given the requisite priority.  All of which often comes off as little more than a smiley face emblazoned with "Have A Nice Day."

Understandably, regulators have an obligation to not defame those firms and individuals against whom mere allegations have been raised and the confidentiality of civil and criminal investigations cannot be sacrificed merely because some antsy whistleblower wants to spend whatever bounty may be coming his or her way.  On the other hand, lining up behind the first whistleblower to contact a regulator may be more witnesses and potential informants who lacked the courage to be the first one out of the gate.  These heel draggers often know about the tip filed by the early bird whistleblower and hang back to see if the information gets processed.  The thundering silence of apparent inactivity by regulators often drives more tips and tipsters back into the woodwork.  Ultimately, there has to be a much happier medium than the present protocols offer.

On August 12, 2011, the  Securities and Exchange Commission's ("SEC's") new Whistleblower rulesbecame effective.   The Whistleblower program will supposedly pay to eligible whistleblowersbetween 10 and 30 percent the monetary sanctions collected by the SEC. To be eligible, you need to voluntarily provide the SEC with original information that leads to a successful SEC action with sanctions exceeding $1 million. The SEC will post a Notice of Covered Action,which will provide eligible whistleblower with 90 calendar days to apply for an award by submitting a completed Form WB-APP to the Office of the Whistleblower.

Eligible Whistleblower: a person who voluntarily provides 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 resulting in an order of monetary sanctions exceeding $1 million. One or more people are allowed to act as a whistleblower, but companies or organizations cannot qualify as whistleblowers. You are not required to be an employee of the company to submit information about that company

Voluntarily Provided Information: You provide to the SEC or another regulatory or law enforcement authority before

(i) such organizations requested the information from you or your lawyer or

(ii) Congress, another regulatory or enforcement agency or self-regulatory organization (such as FINRA) asks you to provide the information in connection with an investigation or certain examinations or inspections.

Original information:  Information derived from your independent knowledge (facts known to you that are not derived from publicly available sources) or independent analysis (evaluation of information that may be publicly available but which reveals information that is not generally known) that is not already known by the SEC. Information previously received from another person may nullify your submission as being "original," unless you were the original source of the information that the other person submitted.


The SEC recently posted a video: What Happens to Tips, which presents Sean McKessy, Chief of the Office of the Whistleblower. WATCH the video or READ a transcript of McKessy's comments.


Learn how to submit an SEC tip

Frequently Asked Questions for SEC

To Submit Tips, see SEC FORM TCR

FINRA's Office of the Whistleblower