SEC’s Record Whistleblower Award: Context and Key Take-Aways

Oct 9, 2014

Reading Time : 3 min

The whistleblower program also broadly prohibits retaliation against whistleblowers and requires the SEC to keep the whistleblower’s identity anonymous. As such, the SEC revealed few details about this whistleblower or the underlying action, except that the whistleblower lives overseas, that the related violation preceded the enactment of Dodd-Frank and that the whistleblower provided “information about an ongoing fraud that would have been very difficult to detect.”

Despite the lack of details, there are several key takeaways:

  • The award is the largest awarded to date under the SEC whistleblower bounty rules and more than double the previous record of $14 million.
  • The award is the 15th the SEC has made since the whistleblower program’s inception in May 2011.
  • Based on a press release issued by the law firm representing the whistleblower, the whistleblower appears to have been represented by legal counsel throughout the process. Many plaintiff law firms (particularly those that historically have focused on securities or employment class actions) seem to view the SEC whistleblower rules as fertile ground for expansion and appear actively to be seeking out potential whistleblower clients.
  • The SEC order criticized the whistleblower for delaying his or her report to the SEC. While noting the significance of the information and the assistance that the whistleblower provided, the SEC found that the whistleblower unreasonably delayed reporting the violations, noting that during the delay, “investors continued to suffer significant monetary injury that otherwise might have been avoided.” Accordingly, the SEC made a downward adjustment to the total award amount, in spite of the whistleblower’s unsuccessful arguments that the award was below the average percentage awarded to other successful claimants (which reportedly is approximately 24 percent).  The SEC’s order suggests that the award was on the low side of the 10 percent to 30 percent range.
  • The order took great pains to justify the award to a foreign national and distinguish the Supreme Court’s 2010 decision in Morrison v. National Australia Bank, which curtailed the extraterritorial reach of the antifraud provisions found in the federal securities laws, and the 2nd Circuit’s 2014 decision in Liu v. Siemens, which applied the Morrison ruling to the anti-retaliation provisions of the whistleblower programs created by Dodd-Frank. Altogether, the agency dedicated more than a third of the order to explaining the appropriateness of the whistleblower award in light of these decisions. “In our view,” SEC staff wrote in a footnote to the September 22, 2014, whistleblower order, “there is a sufficient U.S. territorial nexus whenever a claimant’s information leads to the successful enforcement of a covered action brought in the United States, concerning violations of the U.S. securities laws, by the commission, the U.S. regulatory agency with enforcement authority for such violations.” “When these key territorial connections exist,” the staff continued, “it makes no difference whether, for example, the claimant was a foreign national, the claimant resides overseas, the information was submitted from overseas, or the misconduct comprising the U.S. securities law violation occurred entirely overseas.”

Many public companies continue to express concern that the bounty program incentivizes employees to go to the SEC directly while bypassing internal reporting systems, thereby undermining public companies’ ability to identify and correct potential wrongdoing as early as possible. The combination of the headline-grabbing size of the award, the SEC’s criticism of the whistleblower for his or her delay in coming forward and the growing prominence of whistleblower attorneys who are compensated only when their clients collect payment from the SEC likely will serve to exacerbate this tension.  In addition, although the SEC has censured one serial complainant who knowingly submitted frivolous information to the SEC on numerous occasions, no real downside exists for the whistleblower who files an erroneous report with the SEC.

Maintaining a credible internal reporting system likely remains one of the best ways to manage these situations, as evidenced by empirical research, which shows that most employees prefer to resolve concerns within their respective organization’s systems and that most employees only approach regulators or other third parties as a last resort when they feel that their concerns are not being addressed adequately. Companies with operations outside the United States also should pay special attention to local laws or customs that may be inconsistent with operating a U.S.-style compliance program.

Akin Gump regularly counsels issuers and other SEC registrants about developing and maintaining internal compliance programs and handling internal reports of potential issues. We also help clients with conducting internal investigations and defending against SEC investigations and enforcement actions. Akin Gump’s clients enjoy access to firm-wide resources, including our Corporate/Capital Markets and Global Investigations and Compliance/Securities Enforcement and Litigation practice groups. The lawyers in these practices are available to advise clients in connection with these issues.

Share This Insight

Previous Entries

Deal Diary

June 27, 2024

On June 24, 2024, the U.S. Securities and Exchange Commission (SEC) published five new Form 8-K Compliance and Disclosure Interpretations (C&DIs) expanding the agency’s interpretations of cybersecurity incident disclosures pursuant to Item 1.05 of Form 8-K. In July 2023, the SEC adopted final rules with respect to cybersecurity incidents that generally require public companies to disclose (i) material cybersecurity incidents within four business days after determining the incident was material and (ii) material information regarding their cybersecurity risk management, strategy and governance on an annual basis. We wrote about the final cybersecurity disclosure rules here.

...

Read More

Deal Diary

February 12, 2024

The Securities and Exchange Commission (SEC) recently adopted final rules (available here; also see the fact sheet and press release) representing significant changes to  special purpose acquisition companies (SPACs), shell companies and the disclosure of projections. These rules aim to enhance disclosures, protect investors and align the regulatory framework for SPACs with traditional IPOs. The following summarizes the key aspects of these rules.

...

Read More

Deal Diary

October 4, 2023

On September 20, 2023, the U.S. Securities and Exchange Commission (SEC) issued a final rule amending the so-called “Names Rule” (found here) that is “designed to modernize and enhance” protections under Rule 35d-1 of the Investment Company Act of 1940. The final rule is part of the SEC’s holistic efforts to regulate environmental, social and governance (ESG) matters, and is the SEC’s latest attempt to curb greenwashing in U.S. capital markets. The amendments require registered investment funds that include ESG factors in their names to place 80% of their assets in investments corresponding to those factors, thereby extending to ESG funds the SEC’s long-standing approach of regulating the names of registered funds to ensure they are marketed to investors truthfully. Fund complexes with more than $1 billion in assets will have two years from the final rule’s effective date (60 days after publication in the Federal Register) to comply, while fund complexes with less than $1 billion in assets will be given a compliance period of 30 months.

Chair Gary Gensler said “[t]he Names Rule reflects a basic idea: A fund’s investment portfolio should match a fund’s advertised investment focus. In essence, if a fund’s name suggests an investment focus, the fund in turn needs to invest shareholders’ dollars in a manner consistent with that investment focus. Otherwise, a fund’s portfolio might be inconsistent with what fund investors desired when selecting a fund based upon its name.” The sole dissenting vote against the rule modification, Commissioner Mark Uyeda, said “[w]ith these amendments, the Commission overemphasizes the importance of a fund’s name, as if to suggest that investors and their financial professionals need not look at the prospectus disclosures.” Commissioner Uyeda also expressed concern that fund investors will bear the increased compliance costs associated with the rule change.

...

Read More

Deal Diary

May 31, 2023

As discussed in our prior publication (found here), the Securities and Exchange Commission (SEC) adopted amendments on December 14, 2022, regarding Rule 10b5-1 insider trading plans and related disclosures. On May 25, 2023, the SEC issued three new compliance and disclosure interpretations (C&DIs) relating to the Rule 10b5-1 amendments.

...

Read More

Deal Diary

May 24, 2023

On May 15, 2023, the Eastern District of California ruled that California Assembly Bill No. 979 (“AB 979”) violates the Equal Protection Clause of the U.S. Constitution’s Fourteenth Amendment and 42 U.S.C. § 1981. As enacted, California’s Board Diversity Statute, required public companies with headquarters in the state to include a minimum number of directors from “underrepresented communities” or be subject to fines for violating the statute. AB 979 defines a “director from an underrepresented community” as “an individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender.”

...

Read More

Deal Diary

May 9, 2023

Update: On October 31, 2023, the Fifth Circuit granted the US Chamber of Commerce's petition for review of the SEC's share repurchase disclosure rules, holding that the SEC acted arbitrarily and capriciously in violation of the Administrative Procedure Act. The court directed the SEC to correct the defects within 30 days of the opinion. On December 1, 2023, the SEC informed the Fifth Circuit that it was unable to correct the rule's defects within 30 days of the opinion. On December 19, 2023, the Fifth Circuit vacated the SEC’s share repurchase disclosure rules.

...

Read More

Deal Diary

April 12, 2023

We have released our 2023 ESG Survey which includes a collection of reports reflecting on significant ESG themes and trends from 2022, as well as what we believe to be key developments for 2023.

...

Read More

Deal Diary

February 6, 2023

As companies begin preparing for the 2023 proxy season, we note that Institutional Shareholder Services Inc. (ISS) and Glass Lewis, the leading providers of corporate governance solutions and proxy advisory services, issued updated benchmark policies (proxy voting guidelines), which can be found here and here, respectively. The updated proxy voting guidelines generally focus on board accountability and oversight considerations and address topics such as climate accountability, board diversity, shareholder rights, corporate governance standards, executive compensation and social issues. What follows is a summary of the proxy voting guidelines published by ISS and Glass Lewis for the 2023 proxy season.

...

Read More

© 2025 Akin Gump Strauss Hauer & Feld LLP. All rights reserved. Attorney advertising. This document is distributed for informational use only; it does not constitute legal advice and should not be used as such. Prior results do not guarantee a similar outcome. Akin is the practicing name of Akin Gump LLP, a New York limited liability partnership authorized and regulated by the Solicitors Regulation Authority under number 267321. A list of the partners is available for inspection at Eighth Floor, Ten Bishops Square, London E1 6EG. For more information about Akin Gump LLP, Akin Gump Strauss Hauer & Feld LLP and other associated entities under which the Akin Gump network operates worldwide, please see our Legal Notices page.