Article by John Joy, Managing Attorney, FTI Law.
On October 3rd, Frances Haugen, a data engineer and former Facebook employee gave a 60 Minutes interview alleging that Facebook had internal research showing that its platform magnified hate and discrimination. Not only did Haugen publicly make these allegations, but she also reported them to one of Facebook’s regulators, the Securities and Exchange Commission (SEC). Some may think this an odd choice, as the SEC does not have the power to fine Facebook for unethical conduct. However, Haugen was not just alleging unethical conduct at Facebook, she was alleging that Facebook had misled the (investing) public. This is likely an allegation that Facebook committed Securities Fraud, putting it neatly in the SEC’s comfort zone for enforcement actions.
If the SEC fines Facebook for this conduct, Haugen could be in line for a payout in the form of a whistleblower reward. The SEC pays whistleblowers 10-30% of any fine it recovers on the basis of information provided by the whistleblower, provided the SEC collects a fine of at least $1 million. The SEC has paid out over $1 billion to whistleblowers over the last 10 years and the average SEC award is over $4 million.
Taking Haugen’s case as an example, if the SEC fined Facebook $10 million based on Haugen’s information, she could be eligible for a $1-3 million payout. Where it gets interesting is if another agency, like the FTC, also fined Facebook on the basis of the same information. Lucky for whistleblowers, the SEC can also pay 10-30% of a fine imposed by another agency if it is based on the same information. This is an interesting prospect given that in 2019, the FTC fined Facebook almost $5 billion. If the FTC was to fine Facebook something similar this time around, Haugen could be looking at a billion-dollar award.
The danger for Haugen is what happens if the FTC fines Facebook, but the SEC does not. This could happen if the SEC thinks the allegations don’t amount to Securities Fraud, or if the SEC imposes a non-monetary penalty against Facebook. In that scenario, Haugen would not be entitled to an SEC award because the SEC never collected a fine of at least $1 million, a key requirement of the SEC whistleblower rewards program. As the FTC does not have a whistleblower rewards program, this could lead to a situation where Facebook faces a large fine from the FTC on the basis of Haugen’s information, but Haugen doesn’t receive an award.
An important data point in estimating the award amount is how many whistleblowers there will be. When dealing with multiple whistleblowers, the SEC may issue an award that is shared among all the whistleblowers who provided valuable information. The SEC also allows for whistleblowers to submit information on an ongoing investigation. Given the amount of publicity caused by Haugen’s allegations, it is possible (if not likely) that other Facebook employees will come forward to the SEC with more information. This could help the SEC’s investigation, but also dilute the award received by Haugen.
While the question of how much Haugen might get paid is an interesting one in light of the publicity of the allegations, it is important to note that she has explicitly stated that her goal is for further regulation in this area. Regardless of whether she gets a whistleblower award, she deserves commendation for taking a stand against a multi-billion dollar corporation.