John Doe is a whistleblower who provided critical information to the U.S. Securities and Exchange Commission (SEC) regarding an international bribery scheme, assisting the agency in bringing a successful enforcement action. Doe timely filed an application for reward under a provision of federal law that directs the SEC to pay an award to whistleblowers who voluntarily provide original information to the agency, contingent on such information leading to a successful SEC enforcement action with monetary sanctions exceeding $1 million. Yet, in Doe’s case, the SEC denied his application for a reward—and the courts upheld this denial—because Doe himself had already pleaded guilty to bribery charges related to the same scheme he helped expose. Under the relevant statute, the SEC is barred from paying an award to any whistleblower who is convicted of a criminal violation “related to the [enforcement] action for which the whistleblower otherwise could receive an award.” In other words, if a whistleblower provides the SEC with information on a particular corruption scheme but is convicted of a crime related to that same scheme, as in Doe’s case, they are ineligible for reward.
What about whistleblowers who are culpable in the unlawful scheme they help expose, but who have not been criminally convicted in connection with that scheme? The SEC has explicitly declined to institute a rule barring culpable but non-convicted whistleblowers from receiving an award. Therefore, participants in an unlawful scheme, including a bribery scheme, may still receive an award if they blow the whistle on the offense, so long as they are not convicted for their role. The SEC’s position has been criticized as both unfair and potentially harmful. During the agency’s rulemaking process, several commenters, including a group of senior corporate executives and the American Bar Association, advocated for a more stringent rule in order to avoid incentivizing violations of securities laws. Recently, a Bloomberg Law article branded the program as “enrich[ing] fraudsters,” reflecting the continuing sentiment that no culpable whistleblower should be eligible for reward.
These criticisms are misplaced. While it is undoubtedly important to ensure that whistleblowers cannot profit from their own wrongdoing, it would be unwise to implement a more stringent standard than the one set out in the SEC’s current rule.