SEC Awards $300K to Whistle-Blower in First Reward to Audit and Compliance Worker

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By Yin Wilczek

Aug. 29 —The Securities and Exchange Commission Aug. 29 said it awarded more than $300,000 to an audit and compliance professional whose employer failed to take action after he or she made an internal complaint about possible securities violations.

The commission said the reward is its first to a whistle-blower with an audit or compliance function. Such employees are ineligible for an SEC bounty unless they first report a perceived violation internally, then wait 120 days before approaching the commission with the same information.

Front Lines

“Individuals who perform internal audit, compliance, and legal functions for companies are on the front lines in the battle against fraud and corruption,” Sean McKessy, chief of the SEC's Whistleblower Office, said in a release. “They often are privy to the very kinds of specific, timely, and credible information that can prevent an imminent fraud or stop an ongoing one.”

In a related order, the SEC said the whistle-blower claim arose in connection with an action in which a former executive of an environmental company and a high-technology concern agreed to pay more than $1.5 million to settle insider trading allegations. The whistle-blower was awarded 20 percent of the sanctions collected in the case.

The SEC's order was redacted to protect the whistle-blower's identity.

More Coming Forward?

David Marshall, a Washington-based partner at Katz, Marshall & Banks LLP who represents whistle-blowers, agreed that compliance or audit employees often are in the best position to observe insider trading or other securities violations within their companies.

“Here the employee did the right thing by reporting the violations internally, giving the company four months to address them, and then reporting the violations to the SEC when the company took no action,” Marshall said. “I think we will see many more of these employees coming forward in the future now that the SEC has applied the 120-day exception to the general rule that they are not eligible to participate in the whistle-blower program.”

To contact the reporter on this story: Yin Wilczek in Washington at ywilczek@bna.com

To contact the editor responsible for this story: Phyllis Diamond at mailto:%20pdiamond@bna.com