What If I Report Securities Fraud Internally and Nothing Is Done?

Under the Securities and Exchange Commission’s whistleblower program, employees who provide valuable information about securities fraud can receive sizable award payouts. Generally, though, if a compliance staff member or a high-level employee — an executive, for instance — reports a securities violation after hearing about it through another employee or through the company’s compliance processes, then the staffer or executive is ineligible to receive an award from the SEC.

However, if more than 120 days pass and the violation hasn’t been adequately addressed through internal processes, then an executive or staffer who reports the fraud to the SEC may be eligible for a monetary award. The award amount may be 10 to 30 percent of the amount recovered.

Since the SEC started the whistleblower program three years ago, 15 whistleblowers have received payouts totaling almost $50 million. The latest award was recently granted to a former executive officer who reported fraud to the SEC 120 days after compliance personnel failed to address the violation.

In this case, the information provided by the executive led to an enforcement action and sanctions of more than $1 million. The SEC announced that the payout to the executive, whose identity the SEC is not allowed to disclose, would be between $475,000 and $575,000.

The director of the SEC’s enforcement division commended the executive for stepping up and reporting the fraud.

The attorneys of Shepherd, Finkelman, Miller & Shah maintain a robust securities litigation practice. To learn more about investment-related disputes and regulatory proceedings, please visit our securities regulation overview.