Securities, Commodities and Tax Award Programs Compared

Three federal programs pay people who report violations, and all three are built differently from the False Claims Act. There is no lawsuit, no seal, and no right to proceed if the agency declines. The reporter makes a submission, the agency investigates or does not, and an award follows only if money is actually collected.

What the three programs share

Each pays a percentage of amounts the government collects rather than of the loss alleged. Each requires original information, meaning information derived from the reporter's independent knowledge or analysis that the agency did not already have. Each requires that the information be provided voluntarily, which generally means before any request, inquiry or demand directed at the reporter.

Each also excludes categories of people. Information obtained through a communication subject to the attorney-client privilege, or learned in the course of a compliance or audit function under the conditions the rules specify, ordinarily does not qualify. A person convicted of criminal conduct related to the action is ineligible for an award under the securities and commodities programs.

The compliance and audit exclusions are narrower than they first appear. The securities rules provide that a person who learned the information in one of those roles may still qualify if enough time passes after the information was reported internally and the entity did not act, or if disclosure is reasonably necessary to prevent substantial injury. Officers, directors, partners and internal investigators are subject to similar conditions. The result is a set of timing rules that a person in a control function has to work through before submitting anything.

Thresholds and percentage ranges

The securities program pays between ten and thirty percent of monetary sanctions collected where those sanctions exceed one million dollars in the covered action, and awards may also be based on related actions brought by other authorities on the same information. The commodities program uses the same range and the same threshold.

The tax program is split. Section 7623(b) provides a mandatory award of fifteen to thirty percent of collected proceeds where the proceeds in dispute exceed two million dollars and, in the case of an individual taxpayer, the taxpayer's gross income exceeds two hundred thousand dollars for any taxable year at issue. Below those thresholds, section 7623(a) allows a discretionary award with no statutory floor. The regulations set out the factors that move an award within the range, including the significance of the information, the extent of assistance and any culpability.

Anonymity and the handling of identity

The securities rules permit an anonymous submission if the reporter is represented by counsel, with counsel certifying and holding the identifying information; identity must be disclosed before an award is paid. The commodities rules follow the same structure. Both agencies treat information that could reasonably identify a reporter as confidential, subject to exceptions for disclosure in enforcement proceedings and to other authorities.

The tax program works differently. A claim is made on the agency's form and signed under penalty of perjury by the reporter, so anonymous filing is not available. The agency protects identity as a matter of practice and by statute where possible, but the reporter may become a witness whose identity is disclosed if the case proceeds to litigation.

Review of an award decision

The securities statute allows a person to appeal a determination regarding an award to the appropriate court of appeals within thirty days, and directs that the record be limited to the administrative record. A determination that the reporter is entitled to an award within the statutory range is generally not reviewable as to amount. The commodities program provides comparable judicial review.

Tax awards are reviewed in the Tax Court under section 7623(b)(4). That is a different forum with different procedures, and it produced years of litigation about the scope of review and what counts as collected proceeds. Across all three, the reviewing court is examining an agency record rather than trying the underlying case, which makes the standards discussed in mixed questions and which standard applies central to any challenge.

The practical limit on review is what the reporter is allowed to see. Award determinations rest on an investigative file the reporter has no general right to inspect, and the agencies release a redacted record. A reporter who believes the agency understated the value of the information therefore argues largely from his own submissions and from the public enforcement result. That asymmetry is the main reason denials are rarely disturbed.

How the three compare, and against a qui tam action

The contrast with a qui tam action is stark. A relator whose case is declined may litigate it and recover a share of what he wins, at the percentages set out in the relator share and what moves it. A reporter under any of these three programs has no such option. What the programs offer instead is a lower barrier to entry, no litigation cost, and in two of the three the ability to report without being named. Contract terms that purport to restrict any of this run into the prohibitions described in employment agreements that try to bar whistleblowing.