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Aug 2012
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August 22, 2012

SEC announces first whistleblower payout under Dodd-Frank bounty program


Yesterday, the Securities and Exchange Commission announced that it has issued its first whistleblower award under the new bounty program established after the 2010 Dodd-Frank Act. Under the Act, whistleblowers may be rewarded between 10 and 30 percent of any money collected in an SEC enforcement action where more than $1 million in sanctions is awarded.

According to yesterday’s SEC press release, the whistleblower in this case has received $50,000, representing 30 percent of the amount collected from the defendant in this “multi-million dollar fraud”. The SEC noted that the whistleblower was eligible to receive further payouts when and if any additional money is collected from this defendant, or if sanctions are awarded against other defendants in this matter. As required by law, the whistleblower’s identity is being kept confidential. Similarly, the particular enforcement action was not identified.

For practitioners, and especially in-house counsel, it will be important to see how this whistleblower bounty program continues to develop. After the Dodd-Frank Act was passed in 2010, there was concern that whistleblowers would bypass internal reporting systems and, instead, take their grievances and observations directly to the SEC in hopes of collecting a large payout for their information. If the SEC continues to award 30 percent bounties, it may entice individuals to skip internal reporting in favor of the bounty program. However, while this individual received the maximum possible payout under the program, it is interesting to note that the SEC denied the second whistleblower’s claim for a portion of the monetary sanctions in this case. In support of that decision, the SEC notes that the information supplied by this second claimant “did not lead to or significantly contribute to the SEC’s enforcement action, as required for an award.”

For further information on the bounty program or this particular award, please see the SEC press release.

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