between a multimillion-dollar whistleblower award and no award at all.
Maximize Your Award
Many questions in Section D will also affect a whistleblower’s future award percentage. Under the program, a whistleblower may receive an award of between 10% and 30% of the total sanctions imposed because of his or her tip. To maximize the size of a potential award, whistleblowers should evaluate the factors that the SEC considers when determining an award percentage and stress these factors in their submissions. This analysis must occur prior to submitting information to the SEC.
Section D, part 5b, for example, asks whether the whistleblower “reported this violation to his or her supervisor, compliance office, whistleblower hotline, ombudsman, or any other available mechanism at the entity for reporting violations.” While this question may be important in determining a whistleblower’s eligibility (in cases involving, e.g., the 120-day exception), it may also impact a whistleblower’s award percentage. According to the SEC’s Final Rules, the whistleblower office may increase the amount of an award if the whistleblower “reported the possible securities violations through internal whistleblower, legal or compliance procedures before, or at the same time as, reporting them to the Commission.” So, whistleblowers should strongly consider reporting internally to their companies before reporting to the SEC. After reporting internally, however, most whistleblowers are incentivized to report to the SEC as soon as possible.
Another way to maximize a potential award lies in Section D, part 12, which asks whistleblowers to provide “any additional information [they] think may be relevant.” This section offers whistleblowers an opportunity to identify and emphasize other aspects of the claim that would support an increased award percentage. The SEC may issue a larger award to a whistleblower who, for example, experienced any “unique hardships... as a result of his or her reporting and assisting in the enforcement action.” (Rule 21F-6(a)(2)(vi).) Whistleblowers should, on their Form TCR, discuss any retaliation they experienced and any personal risks they took to expose the fraud. Again, whistleblowers should consider these factors before submitting a tip to the SEC.
Identify the Securities-Law Violations for the SEC
Section D, part 8 asks whistleblowers to explain why they believe the acts described “constitute a violation of the federal securities laws.” Whistleblowers should determine what violations qualify for an SEC award, and provide the SEC with a clear roadmap describing how the reported acts establish specific qualifying violations.
Whistleblowers should also describe why the violations are material. In the past five years, whistleblowers have filed more than 18,000 tips with the SEC Whistleblower Office. The SEC will use its limited resources to investigate only the best tips. Whistleblowers should therefore explain, in detail, why their tips warrant the use of the SEC’s resources. If a whistleblower is uncertain about a specific violation, he or she may benefit from reading prior SEC enforcement actions and consulting with an experienced SEC whistleblower attorney.
Provide Specific Evidence of the Violation
Section D, part 9 asks whistleblowers to “[d]escribe all supporting materials in [their] possession and the availability and location of any additional supporting materials not in [their] possession.” The SEC Whistleblower Office is more likely to act on a tip if it is supported by strong evidence. Evidence is strong if it is specific, timely, and credible. For example, a whistleblower may provide documentation that walks the SEC through an example of the fraud, step by step, and explains how the fraud materially impacts the entity, its investors, or both.
Notably, recent decisions have clarified what company documents a whistleblower may use—even if the whistleblower signed a confidentiality agreement—to disclose fraud to the government. In Erhart v. BofI Holding, Inc., the U.S. District Court for the Southern District of California held that confidentiality agreements do not trump federal whistleblower rights and that whistleblowers are permitted to take an “appropriate” amount of company documents to disclose fraud to the government. According the order, a whistleblower’s evidence may be considered “appropriate” when it is carefully selected, specifically related to the violation, and accessible in the ordinary course of the employee’s duties. Whistleblowers who engage in “vast and indiscriminate” collection of company documents, on the other hand, may not be immune from potential liability.
Finally, whistleblowers should not provide all types of evidence. The SEC does not want, for example, information that may violate the company’s attorney-client privilege. If a whistleblower has questionable evidence, he or she should consult with an attorney and should potentially notify the SEC to have its taint team handle the evidence.
Protect Your Identity
After providing a detailed explanation of the fraud and the evidence to support it, a whistleblower should identify any information in the submission that could expose him or her as the whistleblower. Section D, part 11 asks whistleblowers to “[i]dentify with particularity any documents or other information in [their] submission[s] that [they] believe could reasonably be expected to reveal [their] identit[ies] and explain the basis for [their] belief that [their] identit[ies] would be revealed if the documents were disclosed to a third party.”
The SEC takes its responsibility to protect whistleblowers’ identities very seriously. Whistleblowers can assist this effort by flagging any information that could potentially identify them. The SEC will then determine the best path to open an investigation without tipping off the target that a whistleblower is even involved.
Section F of the SEC Form TCR
Whistleblowers must sign the Form TCR under the penalty of perjury. Section F requires the whistleblower to affirm the following:
I declare under penalty of perjury under the laws of the United States that the information contained herein is true, correct and complete to the best of my knowledge, information and belief. I fully understand that I may be subject to prosecution and ineligible for a whistleblower award if, in my submission of information, my other dealings with the SEC, or my dealings with another authority in connection with a related action, I knowingly and willfully make any false, fictitious, or fraudulent statements or representations, or use any false writing or document knowing that the writing or document contains any false, fictitious, or fraudulent statement or entry.
If a whistleblower submits a tip anonymously, then his or her signed declaration will not be included in the SEC filing. Rather, the anonymous whistleblower’s attorney will sign Section G and keep the whistleblower’s signed declaration in a private file.
Are there any tips for submitting a TCR to the SEC?
The SEC Whistleblower Program has awarded more than $150 million to 42 whistleblowers. The orders announcing the awards, while sparse, offer critical guidance on how to: (1) recover an award; and (2) maximize the award percentage. These five lessons are drawn from those orders and our experience representing SEC whistleblowers.
Tip #1: Establish a Material Violation
Many SEC whistleblower attorneys will incorrectly begin the analysis of a claim by determining a whistleblower’s eligibility for an award. This puts the cart before the horse. The first step in any successful whistleblower claim is to determine whether you can establish a material violation of federal securities law. In other words, can you show the SEC that your tip concerns a violation that is serious enough to warrant the use of its limited resources?
Whistleblowers have filed more than 18,000 tips with the SEC in the past five years. In a perfect world, the SEC would be able to investigate all legitimate tips and stop even immaterial violations. However, the SEC has limited resources, so it can pursue only the best tips. (See Tip #5 on how to get the SEC’s attention with your tip.)
If you have a hunch about a violation but lack any proof, then it may be worth investigating further, rather than submitting an incomplete or speculative claim to the SEC. Tips generally fall to the wayside unless they provide “specific” and “credib
le” information about material violations. That said, most whistleblowers should submit their tips as soon as possible. (See Tip #3.)
Tip #2: Quickly Determine Eligibility Because It May Affect Award Percentage
The next step in any successful whistleblower claim is to determine eligibility. This step follows a finding of a material violation because, while most individuals cannot establish a material violation, almost everyone can become eligible for an award, if certain steps are taken. Lawyers, external auditors, and even individuals involved in the wrongdoing are among those who may be eligible for awards.
Analyzing an individual’s eligibility is complex. The analysis differs depending on the individual’s relation to the company and how the individual obtained the information. For example, auditors may report to the SEC and be eligible for an award if:
• they have a reasonable basis to believe the disclosure is necessary to prevent conduct that is likely to cause “substantial injury” to the financial interest or property of the entity or investors;
• they have a reasonable basis to believe the entity is engaging in “conduct that will impede an investigation of the misconduct”;
• or at least 120 days have passed either