With its largest reward yet, the Securities and Exchange Commission will give more than $14 million to a whistleblowerwhose information led to an enforcement action that recovered substantial investor funds. 

The SEC's Office of the Whistleblower was established in 2011, as authorized by the Dodd-Frank Act. The program rewards “high-quality, original information” that results in an enforcement action with sanctions exceeding $1 million. Awards can range from 10 percent to 30 percent of the money collected in a case, with payments drawn from a dedicated fund.

The SEC's first payment under the program was made in August 2012 and totaled approximately $50,000. In August and September 2013, more than $25,000 was awarded to three whistleblowers who helped the SEC and the Department of Justice halt a sham hedge fund. The ultimate total payout in that case once all sanctions are collected is likely to exceed $125,000.

“While it is certainly gratifying to make this significant award payout, the even better news for investors is that whistleblowers are coming forward to assist us in stopping potential fraud in its tracks so that no future investors are harmed,” said Sean McKessy, chief of the SEC's Office of the Whistleblower, in a statement.

The latest tipster, who does not wish to be identified, provided information that allowed the SEC to bring an enforcement action and secure investor funds in just six months. By law, the SEC must protect the confidentiality of whistleblowers and cannot disclose any information that might directly or indirectly reveal their identity.

“The scant information provided by the SEC is, in and of itself, significant,” says Jordan Thomas of the law firm Labaton Sucharow, who chairs the firm's whistleblower representation practice. It shows the Commission takes seriously its commitment to maintain anonymity if requested, he says

The "massive award" is not unexpected "as the SEC has a significant pipeline of cases where whistleblower awards appear imminent,” says Gregory Keating, co-chair of employment law firm Littler Mendelson's Whistleblowing & Retaliation Practice.

“Additional payouts are likely to follow and this should serve as a wake-up call to compliance professionals to take a very hard look at their existing programs and strongly consider implementing new protocols – from training to redesigned incident management systems to revised Codes of Conduct – in order to avoid these problems before they mushroom into multimillion dollar catastrophes,” he says.

The timing of the award is significant, Thomas says. He also sees it as signaling a coming wave of rewards. In a 2011 report, the SEC said that 61 percent of enforcement cases take two years or more to complete. Given that the bounty program was established a little more than two years ago,  the most significant cases to qualify may be nearing completion.

The quick turnaround in the latest reward shows that quality information can speed the enforcement process by steering investigations in a focused way, Thomas says. He cautions, however, that while potential whistleblowers should view this as encouraging, they should not assume all cases will be so expedited.

David Marshall, a founding partner of Katz, Marshall & Banks whose practice focuses on corporate whistleblower claims, says the underlying case must have resulted in a recovery of more than $46 million in order to generate an award in the amount of $14 million, assuming their share was the maximum allowed, 30 percent. A 10 percent bounty would push the recovered assets to nearly $114 million.

“From the perspective of whistleblowers with tips pending before the SEC this is a very welcome development, and should serve as an answer to skeptics who were beginning to doubt the effectiveness of the program in helping the SEC to combat securities fraud,” he says.

More information about the SEC's whistleblower program can be found here.