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What Decides a Whistleblower's Reward?

The SEC determines how much to award a whistleblower based on several factors.

A provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act, overseen by the Securities and Exchange Commission, establishes protections and an award system for employees of publicly traded companies who blow the whistle on illegal practices within their organizations.

According to the law, the payouts from penalties will only be made to those who offer independent information that the Commission could not have attained from any other source and which is not "exclusively derived from an allegation made in a judicial or administrative hearing, in a governmental report, hearing, audit or investigation, or from the news media, unless the whistleblower is a source of the information."

After an investigation leads to a company paying fines and penalties, the SEC must determine how much of the bounty will go the whistleblower. According to SEC rule 240.21 F-6 under the Securities Exchange Act of 1934, the factors that influence the award total include how significant the whistleblower's information was - taking into account how it related to the enforcement - whether the person assisted the Commission and to what degree he or she helped.

In addition, the SEC considers whether these awards will lead to further enforcement and more high-quality tips from whistleblowers. Before a person can be considered a whistleblower eligible for SEC money, he or she needs to have participated in the internal compliance systems before coming to the Commission.