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Information Must Be Original

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, a whistleblower who provides “original information” to the SEC (or CFTC) that leads to a successful enforcement action resulting in over $1 million in monetary sanctions may be awarded between 10% and 30% of the monetary sanctions recovered.  Penalties, disgorgement and interest paid count toward the $1 million threshold.

To qualify as “original information,” the whistleblower must come forward with information that is: 1) derived from his or her “independent knowledge” or “independent analysis”; 2) not already known to the SEC from any other source (unless the whistleblower is the original source of the information, such as where he or she had first reported the information to the Department of Justice or Department of Labor, which then passed the information on to the SEC); and 3) not “exclusively derived” from public sources, such as government reports, hearings, audits or investigations, or the news media, unless the whistleblower is a source of the information contained therein.

The SEC considers “independent knowledge” to be factual information that is not derived from publicly available sources. Thus, a whistleblower can have “independent knowledge” of facts if he or she observed the facts first-hand, acquired the knowledge through his or her “experiences” or acquired the information through communications with third parties, such as with a co-worker, customer or client.  If the information is acquired from, among others, a company attorney (both in-house and outside), a compliance officer or other company representative involved in identifying and addressing unlawful conduct, public accountants performing an engagement required by the federal securities laws, who, through the engagement, obtains information about a violation of the securities laws by the company, and persons retained to investigate possible violations of the securities law, the whistleblower will not be eligible for the reward.

Notwithstanding, persons falling within the compliance, investigation or audit categories of excluded persons may still be eligible for a reward if they obtain their information outside the scope of their duties and responsibilities. In addition, the exclusions do not apply, and the whistleblower can be eligible for a reward, where: 1) the whistleblower “reasonably believes” that disclosure is needed to prevent “substantial injury” to the company or investors; 2) the whistleblower “reasonably believes” that the company is impeding an investigation of the violations; or 3) at least 120 days have passed a) since the whistleblower reported the information internally to the audit committee, chief legal officer of other appropriate official and the company failed to take any remedial action, or b) since he or she obtained the information under circumstance indicating that those officials were already aware of the information.

Information that is derived from “independent analysis” is also considered original information. This information comes from a whistleblower’s examination and evaluation of information, either alone or with others.  Under these circumstances, if the analysis reveals additional information that is not “generally known or available to the public,” the whistleblower will be eligible to receive the reward.  This might include, for example, expert analysis of data.

The Law Office of Jeffrey M. Haber is dedicated to providing experienced, dedicated, and aggressive representation for whistleblowers looking to report violations of the federal securities and commodities laws to the SEC or CFTC.  If you have questions about whether your information is original and derived from “independent knowledge” or “independent analysis” under the SEC Whistleblower Program or CFTC Whistleblower Program, contact Jeffrey M. Haber.

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