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(CNN) – Someone just scored a $ 114 million payday without playing the lottery or going into a casino. Instead, the check was signed by Uncle Sam.
The US Securities and Exchange Commission awarded a staggering $ 114 million to a whistleblower who alerted the government to misconduct and provided “extraordinary” assistance in an investigation, the agency announced Thursday.
That more than doubles the SEC’s previous whistleblower record, which was set just four months ago.
“I hope this record-breaking award will encourage others with information about possible violations of securities laws to take a step forward,” Jane Norberg, head of the SEC’s whistleblowing office, told CNN Business in an exclusive interview.
There is a real hardship, both personal and professional, that people endure. Hope the money helps. “
The huge award should also serve as a strong warning to American companies.
In this case, the complainant initially reported the violation internally, without success. At that time, he or she reported to the SEC.
“A great lesson from this award is that companies should take whistleblower reports seriously,” Norberg said. “Because the SEC likely already has the information, or will have it shortly thereafter. And we will follow up on it.”
Wrapped in secret
The path this whistleblower took, first reporting it internally without success before going to authorities, is common, Norberg said.
“People just get frustrated,” he added. “They get pretty disenchanted and that’s when they go to the SEC. The whistleblowers are often employees who can’t live with seeing wrongdoing happen at the company.”
The types of shady behavior that whistleblowers have helped the SEC uncover include everything from Ponzi schemes and insider trading to market manipulation and bribery.
“These tips for whistleblowers have a huge impact on our compliance program. It’s a game changer,” Norberg said.
The SEC fiercely protects the identities of whistleblowers, which means we may never know who received the $ 114 million award or what misconduct it helped uncover.
“It’s incredibly serious,” Norberg said of confidentiality. “People have to feel comfortable to come to us.”
The SEC said the award included about $ 52 million linked to his case, plus $ 62 million of related actions taken by another unidentified agency. And, the SEC said, the whistleblower endured “personal and professional difficulties.”
A record year for whistleblowers
Stephen Kohn, president of the National Whistleblower Center, applauded Thursday’s $ 114 million award.
“This is the kind of award that changes cultures,” said Kohn, a whistleblower attorney at Kohn, Kohn & Colapinto. “It encourages people to step up and it also discourages wrongdoing. It makes it very real to people who are thinking of committing fraud. They realize that there is a high probability that they will deliver.”
Lately, it’s been a particularly lucrative time to be a whistleblower.
The SEC awarded 39 awards to individual whistleblowers totaling about $ 175 million during the fiscal year that ended in September. That’s more than in any year since the agency’s whistleblowing office opened in 2011. And the SEC received a record number of leads last year about possible wrongdoing.
(The Internal Revenue Service has its own whistleblower office, created in 2007, as well as its own awards.)
“When we started, we were a really small store. At the beginning of the program, we were wondering if it would be successful,” said Norberg, who served as the first deputy chief of the whistleblowing office. “Then the tips started coming in. It just grew and grew and grew.”
Since its first payment in 2012, the SEC has awarded a total of $ 676 million to 108 individuals. Prizes are paid out of a pool of money funded entirely by SEC fines, not taxpayer money.
Norberg said the record year was made possible by efforts to simplify the way the agency distributes rewards.
Money and revenge can also be motivating factors
The Whistleblower Program helps uncover suspicious activity by offering a lucrative financial incentive for employees and investors who would otherwise remain silent.
Awards range from 10% to 30% of the fines imposed on SEC actions that result from whistleblower complaints. And under the new rules, rewards of $ 5 million or less, which are the majority of rewards, are supposed to get the maximum 30%.
The SEC passes advice from whistleblowers to investigators to investigate the matter. If that information helps lead to successful enforcement action, the whistleblower is eligible for a reduction in penalties paid.
“Money is also a motivating factor. It can push someone who would otherwise be hesitant to report their concerns,” Norberg said. “There is a real hardship, both personal and professional, that people endure. Money, I hope, helps.”
And sometimes revenge can also be a motivating factor.
“I’ve seen whistleblowers who have personal relationships with the wrongdoer and inform them when the relationship breaks down,” Norberg said.
Emerging largely unscathed
In an era when even the most routine government agencies are politicized, the whistleblower program has survived countless efforts to eviscerate it and has emerged with bipartisan support for its success in catching scammers.
That’s a big change considering the program was born out of Dodd-Frank, the controversial Wall Street reform bill that was enacted in 2010 despite strong opposition from Republicans and the banking industry. Critics were concerned that the whistleblower bureau discouraged employees from reporting wrongdoing internally.
For nearly a decade, SEC whistleblower advice has generated more than $ 2 billion in fines and a $ 500 million return to injured investors.
“Improving the whistleblower program has been a priority for me since I came to the Commission” in 2017, SEC Chairman Jay Clayton told CNN Business. “By adding efficiency and transparency to the program, we have awarded more prizes and given more money in the last three years than in any period in the program’s history.”
Whistleblower advocates breathed a sigh of relief last month when the SEC backed down on a proposed rule that would have topped whistleblower awards. After a two-year battle, the proposal, which would have allowed the agency to cut awards for fines of $ 100 million or more, was unanimously withdrawn after opposition from the whistleblowers’ advocates.
“It was a huge victory for oversight and accountability,” said Kohn, who met with SEC Chairman Jay Clayton and other officials to persuade them to withdraw the proposal. “All successful whistle-blowing programs become bipartisan. The reason? They work.”
Last month, the SEC imposed a new rule that allows the agency to permanently ban an applicant who abuses the process by filing three frivolous award requests.
“We’ve had people treat this show a bit like the lottery,” Norberg said. “It’s frustrating for me, especially when I know the real sacrifices that the real whistleblowers have made.”
But there’s a way it’s like winning the lottery: Whistleblower prizes are subject to federal and state taxes, which for larger prizes are taxed up to 50%. And attorneys representing any whistleblower must also pay taxes on their fees.
This story was first published on CNN.com “A government agency just paid a record $ 114 million to an anonymous whistleblower”
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