SEC Grants Second-Ever Whistleblower Award to Compliance Officer
In April 2015, the SEC announced a $1.5 million whistleblower award to a compliance officer who provided information assisting in an enforcement action against the officer’s company.
Allowing a compliance officer to obtain a whistleblower award is rare—indeed, this was only the second time the SEC has granted such an award. Under the SEC’s whistleblower program, compliance officers are generally not eligible for whistleblower awards, unless: (1) disclosure to the SEC is necessary to prevent the company from causing substantial injury to its own or its investors’ financial interests, (2) the entity is impeding an investigation of the misconduct, or (3) 120 days have elapsed since the company’s management received the information. The only prior award to a compliance officer occurred in August 2014, under the third exception, when the employee reported to the SEC after reporting alleged wrongdoing to the company and, after the lapse of 120 days, the company failed to take appropriate action.
In this case, the compliance officer apparently reported to the SEC when management failed to stop the misconduct upon learning of it. The SEC found the officer met the first exception because he had a reasonable basis to believe that reporting to the SEC was necessary to prevent “imminent misconduct from causing financial harm to investors or the company itself.”
The SEC’s award provides a reminder to companies to ensure they have adequate internal mechanisms to assess and investigate credible reports of misconduct, particularly those by compliance officers, and promptly take steps to address any potential or actual violations.