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What should you know about the CFTC, the SEC and the IRS whistleblower programs?

On Behalf of | Jan 23, 2024 | Whistleblowing |

Any fraud or illegal activity has the potential to put the public at risk. People willing to act as whistleblowers are an essential part of uncovering that activity and holding people and businesses responsible.

The U.S. Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) and the Internal Revenue Service (IRS) all have programs in place to reward whistleblowers who are willing to come forward with information that leads to recovery for the government. What should you know about these programs before reporting illegal or fraudulent activity?

What information could lead to a whistleblower claim?

The information that a whistleblower may report depends on the laws involved. For example, the SEC oversees investigations of a variety of securities law violations. Whistleblowers often report:

  • Stealing money or securities from customers
  • Manipulating market prices
  • Making misleading statements or lying about a company or the investments offered to customers
  • Insider trading

The CFTC also oversees investigations of financial crimes, but these investigations focus on violations of the commission’s regulations and the Commodity Exchange Act. Some common types of misconduct that CFTC whistleblowers may report include:

  • Failing to keep accurate records
  • Fraud
  • Misusing funds intended for investments

The IRS investigates individuals and companies engaging in misconduct to avoid paying taxes. Common issues include:

  • Underreporting income
  • Overstating deductions or making illegal deductions
  • Hiding assets
  • Moving assets abroad to avoid paying taxes
  • Keeping false records

Because these financial crimes may appear similar, people with information about financial misconduct may want to discuss their concerns with an experienced attorney. A lawyer with experience navigating whistleblower claims can help them determine which laws apply.

How do these programs protect whistleblowers?

Because of the risks they take in blowing the whistle about illegal activity, whistleblower programs generally protect the confidentiality of the people reporting fraud. However, there are situations in which revealing the whistleblower’s identity is necessary for the investigation or legal process.

Are whistleblowers protected from legal action?

Generally, whistleblowers are not protected from legal action if they intentionally violated the law themselves. However, whistleblowing is sometimes the best protection against since he CFTC and SEC generally factors their cooperation into decisions about whether to pursue are wrong-doing by whistleblowers. The IRS, meanwhile, notes that the reward they receive may be reduced or eliminated entirely if the government finds that they “planned and initiated the actions that lead to the underpayment of tax”.

How are whistleblowers rewarded under these programs?

The SEC, CFTC and IRS all provide monetary awards for providing original information about fraud or other illegal activities. This is either information that is not already known to the public or that a person has reached through their own analysis. However, each program has its own requirements for qualifying for these monetary awards.

The SEC and CFTC Whistleblower Program offers whistleblowers rewards if their information leads to sanctions totaling $1 million or more. For both programs, the reward for making these reports totals between 10% and 30% of the settlement or fines involved depending upon the value of the information reported and whether there are also others who provided whistleblower information on the same matter. Although these are relatively new programs, millions and millions of dollars have already been awarded to whistleblowers by the FTC and the CFTC.

To qualify for an award as a whistleblower for the IRS, the issue must involve a tax compliance issue where more than $2,000,000 is involved. In addition, the taxpayer’s gross income must be greater than $200,000 for one or more of the years in which the noncompliance occurred. Whistleblower awards total between 15% and 30% of the money collected.

Is everyone eligible for whistleblower rewards?

Some people are exempt from whistleblower rewards. Because of the role that law enforcement plays in prosecuting crimes, both the CFTC whistleblower program and the SEC whistleblower program do not provide whistleblower rewards to law enforcement officers.

The IRS prohibits people who work in the Department of the Treasury or other government positions that handle tax information from acting as whistleblowers. This is because the law regulates what they can and cannot disclose and, in some cases, requires them to report any noncompliance they uncover as a part of their work.

Generally, whistleblowers work in executive positions in the company at issue, but not always.  In some cases, lower-level individuals were privy to information by reviewing reports or being party to conversations.  In addition, in some cases competitors have been whistleblowers

What should I do if I have information to report?

While the law does offer rewards and legal protections to whistleblowers, it is important to that you understand your rights and responsibilities. An experienced attorney can provide guidance as you navigate the reporting process, helping you understand your legal options and avoid missteps. With the right guidance, you can hold individuals and companies responsible for their illegal activity and take steps to protect yourself and your career.