This morning’s announcement that the SEC has made its first award to a whistleblower under its new SEC Whistleblower Program established by Dodd-Frank leaves some clues about the message the SEC intends to send.
Speed: The SEC wasted no time–the award came barely two years after Dodd-Frank’s passage, and a little more than a year after the SEC finalized its SEC whistleblower rules. SEC Office of the Whistleblower Sean McKessy had seemed eager to have the SEC move quickly to utilize whistleblower information, and he upheld his end of the bargain in making a prompt award.
Modesty of amount: The first award was $50,000, which was 30% of the amount collected by the SEC–the maximum percentage permitted. I was surprised that the SEC did not select a larger dollar case for its first award, in order to attract further attention to the program. It may be that this case was the first one mature enough to conclude. If so, I applaud Sean McKessy for simply making the awards as soon as they can reasonably be made.
Encouraging percentage: Director McKessy did make a strong statement in awarding 30% of the SEC’s recovery to date in this first award. As additional sums are collected, the whistleblower will continue to receive 30% of those collections.
Harm prevented: The SEC wisely emphasized how the whistleblower’s actions cut off the scheme before more victims lost money. The Commission described how the whistleblower “provided documents and other significant information that allowed the SEC’s investigation to move at an accelerated pace and prevent the fraud from ensnaring additional victims.” It is hard to argue with stopping fraud before it victimizing others.
One whistleblower denied: As if to show he is no pushover, Director McKessy simultaneously denied a claim by another whistleblower. The SEC explained it was denying another whistleblower a share of the same recovery “because the information provided did not lead to or significantly contribute to the SEC’s enforcement action.”
The stature of this long-needed whistleblower program will only grow so long as the SEC leadership keeps up the momentum in using and rewarding whistleblowers to stop fraud against investors.