SEC Awards More Than $14 Million to Whistleblower
On 1 October 2013, the SEC announced an award of more than $14 million to a whistleblower whose information led to an SEC enforcement action that recovered substantial investor funds. The award is the largest made by the SEC's whistleblower program to date.
The SEC's Office of the Whistleblower was established in 2011 as authorized by Dodd-Frank. The whistleblower program rewards high-quality original information that results in an SEC enforcement action with sanctions exceeding $1 million, and awards can range from 10 per cent to 30 per cent of the money collected in a case.
By law, the SEC must protect the confidentiality of whistleblowers and cannot disclose any information that might directly or indirectly reveal a whistleblower's identity. Therefore, no details are available at present regarding the matter.
The SEC's first payment to a whistleblower was made in August 2012 and totalled approximately $50,000. In August and September 2013, more than $25,000 was awarded to three whistleblowers who helped the SEC and the US Department of Justice halt a sham hedge fund, and the ultimate total pay-out in that case once all sanctions are collected is likely to exceed $125,000.
First Solar Inc.: First Selective Disclosure Enforcement Action in Two Years
In September 2013, the SEC charged the former head of investment relations of First Solar Inc. with violating Regulation FD, which requires companies and individuals to disclose material non-public information publicly in a broad manner and not selectively.
According to the SEC's order, the head of investor relations and several other executives learned that the company was unlikely to receive a much-anticipated loan guarantee from the US Department of Energy. Despite knowing that the company had not yet publicly disclosed this information, the head of investor relations disclosed to approximately twenty sell-side analysts and institutional investors that there was a low probability that the company would receive the loan guarantee. When First Solar broadly disclosed this information in a press release the next morning, its stock price dropped six per cent.
In resolving the administrative proceeding, the head of investor relations agreed to pay a $50,000 penalty and agreed to cease and desist from causing any future violations of Regulation FD.
Notably, the SEC did not bring an enforcement action against First Solar. The SEC indicated that it made this decision in recognition of the company's extraordinary cooperation with the investigation, its quick self-reporting of misconduct, and its remedial measures to address the improper conduct, including additional training for employees responsible for public disclosures.
This matter servers as a reminder to all public companies of the importance of robust compliance, disclosure and training procedures to mitigate a company's exposure to regulatory actions when things do go off-side.
To date, the SEC has brought 15 Regulation FD enforcement actions since its enactment in 2000. While foreign private issuers are exempt from Regulation FD, the SEC expects such issuers to conduct themselves in accordance with its basic underlying principles.
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