Video Friday: Tipping Off the SEC

Watch the What Happens to Tips (in wmv format) by the SEC’s Sean McKessy, Chief of the Office of the Whistleblower, and/or read the transcript below. As Broc Romanek noted, “for the most part, it provides comfort to the potential whistleblower – until you get to this phrase near the end of the video: “SEC enforcement actions can take years to be finalized.” That is a true statement that may scare off a few folks…”

We are often asked what happens after a whistleblower submits a tip, so today, I will walk you through how the investigative process works, and your role as a whistleblower.

First, when you submit a tip, make sure you use the Form TCR, which is required for you to be considered a whistleblower for this program. It contains declarations of eligibility that you must sign off on. You can submit anonymously and be part of the whistleblower program, but if you do submit anonymously you must be represented by counsel. When you submit a whistleblower tip, you will receive a TCR submission number. Please retain this submission number for your reference, but don’t worry if you lose it, we will always be able to find your TCR by your name.

When your TCR is submitted to the SEC, our attorneys, accountants, and analysts will review the data you submit to determine how best to proceed. If it is a matter the Enforcement Division is working on already, the TCR gets forwarded to the staff handling that matter. Often a TCR gets sent to the experts in another Division at the SEC for their evaluation. Even if your tip does not cause us to open an investigation right away, the information you provide is retained and may be reviewed again in the future if more facts come to light and a picture becomes clearer. In any event, please know that each tip received is evaluated very soon after being received by the SEC and it is looked at by at least two SEC attorneys. If we need additional information to evaluate your tip, or to assist us in any resulting investigation, we will contact you, or your attorney.

The best thing you can do to make your tip useful is to provide specific, timely, and credible information. For instance, a general claim that you think your next door neighbor is committing securities fraud does not give our investigators much to go on – even if you are right. Our staff will be much better able to pursue an investigation of your tip if they have specific examples, details or transactions to examine. So, the more information and specifics that you can provide to us to follow up on, the better.

People often call us to ask if they should submit something, or submit an update, and we will almost always suggest that you submit it. As I often tell people, you never know what information may be the last piece of the puzzle for an investigation. Additionally, we explain that what may seem small or insignificant to you might be critical to an investigation.

So, what happens if you submit your tip and it causes an SEC investigation? Our enforcement staff will follow the facts to determine whether to charge an individual, entity or both with securities violations. These investigation can take months or even years to be concluded. Further, even after the investigation is complete and the Commission decides to file a case, the case may be litigated, which may mean significant additional time before the case is resolved. So please understand that it can be a long time before a resolution to the matter is final.

That said, once a matter in which over one million dollars in sanction is ordered is final, we will post a Notice of Covered Action on our website. You can sign up to receive an email each time we post a new one and you may also hear from me or someone in the whistleblower office directly to let you know that the case that you reported has been posted. If you recognize the case you brought, you will have 90 days to submit a Form WB-APP to apply for an award. We will respond promptly to acknowledge receipt. From there, we will go into the deeper analysis required by the Commission’s rules to determine whether to pay an award, and, if so, how much.

The Commission’s rules describe seven factors that we use to determine whether to increase or decrease the percentage of an award. The four factors that may increase an award are: (1) the significance of the information provided by the whistleblower, (2) the assistance provided by the whistleblower (3) any law enforcement interest that might be advanced by a higher award, and (4) the whistleblower’s participation in internal compliance systems – as in, if you reported on a company that you currently or used to work for, did you report internally first, and did you participate in any internal investigation. There are also three factors that can decrease the percentage of an award. These are (1) culpability, (2) an unreasonable reporting delay by the whistleblower and (3) interference with internal compliance and reporting systems. Please know, however, that even if of all these negative factors apply, you may still be entitled to an award higher than the ten percent minimum. You can find more information about each of these factors on our website, under the “Frequently Asked Questions” section.

So in summary, please be aware of the following points. The more specific, credible and timely the information you provide, the better it is for our investigators to follow up on. Please also send in any updates or developments that occur. Understand the positive and negative factors the Commission considers in determining an award percentage. And finally, please be aware that that the securities laws can be very complex and that SEC enforcement actions can take years to be finalized.

Thank you for listening, if you have any questions, please call us at (202) 551-4790, or visit the frequently asked questions section of our website.

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