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Former Company Officer Awarded up to $575,000 by SEC

March 3, 2015

Author: Christine B. Hawes.

The Securities and Exchange Commission announced yesterday its first whistleblower award to a former company officer who learned about the fraud from another employee. The award, which will be between $475,000 and $575,000, follows on the heels of the SEC’s award to a whistleblower who performed audit and compliance functions. Yesterday’s announcement is noteworthy because company partners, officers, trustees, and directors (like compliance employees) ordinarily are not eligible to receive whistleblower awards from the SEC because the information they provide is not “original” if it has been acquired from someone else within the company. However, there are several exceptions to this rule; in particular, as was the case with this award, where the officer has reported the fraud to other responsible individuals at the company and, after 120 days, the issue has not been adequately addressed. The SEC’s Director of Enforcement stated that “this particular officer should be commended for stepping up to report a securities law violation when it became apparent that the company’s internal compliance system was not functioning well enough to address it.”

The SEC’s decision to issue an award under these circumstances might concern employers, who expect their trusted officers and directors to resolve issues rather than turn directly to the government as soon as one of the exceptions has been nominally satisfied. But it is becoming increasingly clear that companies should address internal complaints of securities fraud or risk trusted and knowledgeable officers directing their complaints to the SEC for potentially large payouts.

Christine B. Hawes
Counsel – Washington, D.C.
Phone: +1.202.624.2968