In the first of what the SEC hopes will be many more such awards, a whistleblower has received $50,000 for his or her help in stopping a multi-million dollar fraud. More money may be forthcoming for the individual if other, related cases move forward. The first award comes about a year after the whistleblower program began operating.

At a time when fraud in the financial services industry remains maddeningly difficult to root out and stop, the SEC hopes to use this expanded award program to avert future Bernie Madoff-style affinity scams, along with fraudulent schemes in all their manifestations. The commission also aims to vastly improve on the results of its last whistleblower-type program, known as the bounty program, which was limited to insider trading violations. In its 20 years of existence, that program produced a mere nine payouts to informants out of 15 claims, according to SEC spokesman John Nester.

"Insider trading is something that lends itself a little less readily to whistleblowers," Nester says. "This [new] program is one that the chairman sought shortly after she took office and that Congress [allowed] . to expedite investigations and shorten them and prevent future victimizations."

This first award represents 30% of the amount collected in an SEC enforcement action against the perpetrators of the scheme. That's the maximum percentage payout allowed by the whistleblower law, according to the SEC. The program allows for awards that amount to 10% to 30% of the fines collected. Awards are given only in cases in which sanctions exceed $1 million.

Rather than release even general information about the case, Nester says, the commission is keeping any information it shares about it "sterile."

"Our paramount concern besides stopping the wrongdoing is to protect the whistleblower," Nester says. "Absolutely we want to make sure whistleblowers know that they can come to us in confidence." Those whistleblowers who choose to identify themselves may do so, but in this case, the individual elected to remain anonymous, he says.

The award recipient provided documents and other significant information that allowed the SEC's investigation to move at an accelerated pace and prevent the fraud from ensnaring additional victims, according to the commission.  That assistance led to a court ordering more than $1 million in sanctions, of which approximately $150,000 has been collected thus far, the SEC says.  The court is considering whether to issue a final judgment against other defendants in the matter.  Any increase in the sanctions ordered and collected will increase payments to the whistleblower.  

"This whistleblower provided the exact kind of information and cooperation we were hoping the whistleblower program would attract," Robert Khuzami, Director of the SEC's Division of Enforcement, said in a statement. "Had this whistleblower not helped to uncover the full dimensions of the scheme, it is very likely that many more investors would have been victimized."

The SEC did not approve a claim from a second individual seeking an award in this matter because the information provided did not lead to or significantly contribute to the SEC's enforcement action, as required for an award.

Every day, the SEC receives roughly eight tips through its program. Specific guidance on the whistleblower website has helped to substantially increase the quality of the tips, according to Nester. For example, anyone who wants to submit a tip anonymously must be represented by a lawywer, Nester says.

"You can't just send in a letter," he says. And, "if you come in with [a lawyer], legal counsel has a good grasp of evidentiary standards."

The 2010 Dodd-Frank Act authorized the whistleblower program, which includes enhanced anti-retaliation employment protections for whistleblowers and provisions to protect their identity.  The law specifies that the SEC cannot disclose any information, including information the whistleblower provided to the SEC, which could reasonably be expected to directly or indirectly reveal a whistleblower's identity.

"Whenever we bring an action that results in an award for a whistleblower," Nester predicts, "it will promote and incentivize other people to come forward and [that] will reduce the number of people who are ultimately victimized."