On March 26, 2019, the SEC announced that it was awarding two whistleblowers a total of $50 million for providing the agency with information that led to a successful enforcement action. The two awards consisted of an award to one individual of $13 million and an award to a second individual of $37million. The $37 million award is the third largest award in the history of the SEC’s whistleblower program. The SEC’s March 26, 2019 press release announcing the awards can be found here. The SEC’s whistleblower award order can be found here.
The SEC’s press release does not identify the names of the individuals receiving the awards nor does it identify the matter in connection with which the award was being made. The agency’s whistleblower award order is heavily redacted to remove all identifying information of this type.
However, on March 26, 2019, the Labaton Sucharow law firm issued its own press release (here), in which the law firm claimed to have represented the individual who received the $13 million award. The law firm’s press release states that its client provided a whistleblowing tip to the SEC that led to the agency’s enforcement action against J.P. Morgan Securities LLC (JPMS) and JP Morgan Chase Bank N.A.(the Bank)
In the agency’s action against JPMS and the Bank, the SEC alleged that the JPMS, an investment advisory service, failed to disclose to conflicts of interest to clients. Specifically, the agency alleged that the defendants failed to disclose that they preferred to invest investment advisory clients’ money in the firm’s own proprietary investment products. On December 18, 2015, the defendants resolved the agency’s enforcement action by agreeing to pay $267 million and admitting to wrongdoing. According to the law firm’s press release, their client, who was ultimately awarded $13 million for his whistleblowing tip that led to the enforcement action, cooperated with the agency’s enforcement action.
According to the SEC’s press release, the $37 million awarded to the second individual represented the third largest individual award in the history of its whistleblowing program, exceeded only by the $38 million awarded in September 2018 and the $50 million awarded in March 2018. Interestingly the three largest individual awards have all been awarded just in the last 12 months.
The SEC has now awarded a total of $376 million to 61 individuals since 2012. The award amounts are paid out of an investor protection fund established by Congress and funded entirely by monetary sanctions paid to the SEC by securities law violators.
With awards of this size apparently becoming increasingly common, whistleblowers clearly have significant incentives to come forward. But despite the potential size of the awards, becoming a whistleblower is not necessarily an easy path. Consider the facts in this case – the underlying enforcement action here was resolved in December 2015, yet the agency did not make the award to the whistleblowers until over three years later. It is also worth noting that in the award order in this case, the agency not only granted the awards to the two individuals, it also denied awards to two other individuals. Thus, while there are substantial financial incentives for whistleblowers to come forward, it is a long and uncertain path to a whistleblower award. This possibly may be among the reasons why a law firm practice advising whistleblowers has developed, to provide guidance through the protracted and precarious process.
While there have now been a number of substantial whistleblower awards and while the program is now well established, I still have yet to see one thing I expected to emerge from this process. I thought we would see the emergence of securities class action lawsuits following on in the wake of SEC enforcement actions brought based on whistleblower tips. As far as I know there have not yet been any of these kinds of follow on lawsuits filed. Of course, given the lag time between the SEC enforcement action and the ultimate whistleblower award, it is entirely possible that the SEC action could be resolved and a follow on securities lawsuit filed long before it became apparent that the agency enforcement action arose from a whistleblower report.