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What does SEC whistleblowing entail?

| Mar 23, 2021 | Whistleblowing |

The Securities Exchange Commission is an entity that ensures that firms handling securities adhere to stipulated laws. The SEC has codified rules, regulations and norms that govern the conduct of transactions. However, these rules are sometimes violated. Such unlawful acts include insider trading, alteration or concealment of essential securities-related information, adulteration of securities pricing, selling securities that are not duly registered, mistreating clients, fraud and embezzlement.

Are there legal protections for SEC whistleblowers?

In an attempt to clamp down on these violations, the SEC encourages whistleblowers to report any incidences of underhand dealings anonymously within their workplaces.

The need to protect whistleblowers saw measures put in place to protect them against employer retaliation, such as demotions, layoffs, harassment, and other forms of victimization. A myriad of federal and state laws protect employees who reveal securities exchange-related violations at their places of work. Employers who retaliate against SEC whistleblowers are sanctioned through double penalties, orders to shoulder all costs incurred and other dire repercussions.

Another legal protection afforded to SEC whistleblowers is the benefit of anonymity since SEC investigations are private and not commenced until watertight cases are built.

Finally, there are SEC whistleblower rewards. If the report that a whistleblower made is legitimate, they are entitled to hefty compensations. Successful claimants are awarded between 10% – 30% of monies recovered. This incentivizes employees to be forthcoming with the truth about securities exchange violations.

What is the SEC whistleblowing process?

The SEC whistleblowing process can be categorized into three stages: the preliminary stage, the investigation stage and the award stage.

During the preliminary stage, the whistleblower lodges their complaint in a dedicated statutory form for intake and triage by the SEC Market Intelligence Office. At this point, it will be determined whether or not the complaint should be investigated further.

After preliminaries, investigations commence, looking into the whistleblower submissions and gauging the whistleblower tip’s quality against the evidence gathered by SEC investigators. Here, whistleblower information is also processed in preparation for the award.

Successful SEC whistleblowers raise the alarm to violations sanctioned above $1 million. They are then eligible to claim their awards within 90 days. Aggrieved whistleblowers (over the share awarded) can appeal to federal courts, although this jeopardizes their anonymity.

Under the Dodd-Frank Act, employers who retaliate against employees reporting securities exchange violations are liable to face both civil and criminal legal action. These can be initiated either by the SEC or the employee who has allegedly been retaliated against. All persons are also prohibited from preventing the reporting of any securities exchange violations to the SEC.