Risk Management and Crisis Response Blog

The SEC Makes Another Huge Whistleblower Award

Jun 16, 2016 3 MIN READ
Lawrence E. Ritchie

Partner, Disputes, Toronto

As the Ontario Securities Commission  (“OSC”) inches towards  unveiling  its version of  its American counterpart’s whistle blower “bounty” program, American whistleblowers continue to receive significant pay days from the Securities Exchange Commission (the “SEC”) for alerting the SEC to potential securities law violations.

On Thursday June 9, 2016 the SEC announced that it would be paying  $17 million to an individual who provided information the SEC used in proceedings against the individual’s former employer. The $17 million award is the second largest whistleblower award that the SEC has ever paid out (the largest amount being a payment of over $30 million announced in September 2014). SEC whistleblower awards range from 10% to 30% of the sanction that the information provided helped secure. As a result, while for confidentiality reasons the SEC does not disclose the proceeding that the whistleblower award relates to, it can be estimated that the proceeding resulted in sanctions in the range of $50 million to $170 million.

The proposed OSC whistleblower program, (the “Program”) which we have discussed in detail previously, is expected to “go live” this spring or summer. The policy also seeks to encourage company insiders, and other individuals uniquely positioned to protect investors to come forward with information they may have about securities violations. While the Program will also incentivize individuals to come forward with information through monetary awards, the large pay days for whistleblowers that are becoming increasingly common in the United States will not be a part of the Program. Instead the Ontario Program contemplates whistleblower awards between 5% and 15% of the total monetary sanctions and/or voluntary payments, up to a maximum of $5 million. Such an award would only be payable if the whistleblower provided information to the OSC that resulted in an order for monetary sanctions and/or voluntary payments totalling $1 million or more. Despite there not being a potential for awards in the range of those made by the SEC, like the SEC, the Program will aim to provide whistleblowers with adequate protections, including anti-retaliation measures in circumstances where an individual has provided information about its current employer to the OSC, or in circumstances where the individual has reported wrong doing internally within his or her organization.

The OSC approach to incentivizing whistleblowers to provide information will be followed closely to see whether it is able to elicit the quality, timely information it seeks in order to fulfil its mandate to protect investors from the misconduct of market participants.

Andrew Ceresney, Director of the SEC’s Division of Enforcement noted that company insiders such as the whistleblower in this case “are uniquely positioned to protect investors and blow the whistle on a company’s wrongdoing by providing key information to the SEC so [it] can investigate the full extent of the violations”. Ceresney also commented that “[t]he information and assistance provided by this whistleblower enabled [SEC] enforcement staff to conserve time and resources and gather strong evidence supporting [the SEC’s] case.”

As with the American regulatory environment, the Ontario Program will be widely observed by other jurisdictions and market participants, to see if its operation will materially change the enforcement environment.