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SEC awards whistleblower reduced amount citing whistleblower culpability

whistleblowerIn a recent order, the United States Securities and Exchange Commission made an order awarding a whistleblower 20% of any money collected by the SEC in connection with the whistleblower’s tip, rather than the maximum entitlement of 30% under the SEC’s Whistleblower Program. The February 28, 2017 order emphasized that the reduced award was a result of the whistleblower’s culpability in connection with the securities law violations and the whistleblower’s delay in reporting the violation to the SEC. In keeping with the SEC’s practice, the announcement did not identify the whistleblower or the company and individuals involved. This is not the first time that the SEC has allowed a whistleblower who was complicit in the securities law violation to receive an award, underscoring the SEC’s view that information from tipsters (including those who may have been involved in wrongdoing) is critical to successful prosecutions.

The OSC’s similar approach to whistleblower culpability

Last summer, the Ontario Securities Commission launched its own widely-anticipated Whistleblower Program, which was modeled on the SEC’s whistleblower framework. Under the program, eligible whistleblowers are eligible to receive up to $5 million. As Osler noted in our comment letter to the OSC during the Request for Comment period for the Whistleblower Program, and again when the whistleblower program came into force, we agree with the position that similar to the approach taken in the US, culpable whistleblowers should not necessarily be prevented from receiving awards, and that the level of culpability should be a factor considered when determining if the individual is eligible for an award and for how large that award should be.

The OSC Whistleblower Program considers whistleblower culpability under Section 17(1) and 17(2) in a manner consistent with our perspective, stating:

17. (1) A whistleblower who is complicit in the violation of Ontario securities law about which the whistleblower submitted information to the Commission may nonetheless be eligible for a whistleblower award.

(2) The degree to which a whistleblower is complicit in the conduct that is the subject of the information provided to the Commission is a factor that may decrease the amount of any whistleblower award that may be made.

Despite what is currently a fairly consistent policy approach taken by the SEC and OSC when dealing with culpable whistleblowers, the position that such whistleblowers should be eligible to receive an award remains a topic of debate. In the US, potential legislation that includes a provision that would disallow a whistleblower award if the whistleblower were a co-conspirator in the securities law violation is set to be put before the House of Representatives. As a result, Canadian securities industry stakeholders should monitor developments related to culpability and whistleblower awards in the US, as they may impact future OSC decisions on the same issues.

By: Raphael T. Eghan and Steve Marmer, Osler, Hoskin & Harcourt LLP

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In addition to our regular guest bloggers, Inside Internal Controls blog published by First Reference, provides occasional guest post opportunities from various subject matter experts on the topics of risk management and best practices in finance and accounting, information technology, environmental issues, corporate governance, sales/marketing and operations, not-for-profits and business related issues in Canada. If you are a subject matter expert and would like to become an occasional blogger, please contact Yosie Saint-Cyr at editor@firstreference.com. If you liked this post and would like to subscribe to Inside Internal Controls blog click here.
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