SEC Whistleblower Program a ‘Game Changer’

Kurt Wolfe

The US Securities and Exchange Commission’s Office of the Whistleblower released its 2015 Annual Report to Congress on Monday. In it, the Chief of the SEC’s Whistleblower Office predicts that ‘the whistleblower program will continue to be ‘a game changer’ in the enforcement of the federal securities laws’.

But is it changing the game for institutions with headquarters or operations outside the United States? A closer look at available whistleblower data suggests that the number of whistleblower tips from abroad might have (temporarily) plateaued, but the lure of a potential whistleblower bounty payment remains a strong incentive.

In August, we reported on the incentives for whistleblowers who reside overseas to come forward to the SEC with tips relating to potential US securities laws violations. In short, the SEC’s whistleblower office offers attractive financial incentives—incentives that simply do not exist in other jurisdictions—to encourage tips from whistleblowers who live outside the US.

The program has been remarkably successful at attracting tips from abroad. In the first four years for which whistleblower statistics are available, tips from non-resident whistleblowers comprised roughly 11% of the total tips received. And the first several years of the program were marked by a steady uptick in tips from foreign nationals.

But the 2015 data reflect a marked decrease in the number of tips from abroad. Indeed, while the total number of tips received increased again this year—from 3,620 in 2014 to 3,923 in 2015—the number of tips from abroad actually declined. (See the table below.)

 

Tips from abroad

 

Despite the decline, the SEC remains committed to attracting potential whistleblowers who live outside the United States. Its rhetoric on this point is steadfast: the Commission is eager to receive tips from abroad and willing to award foreign nationals in appropriate cases.

Indeed, among its 2015 whistleblower program highlights, the SEC included an ‘award to foreign nationals who jointly reported information’. On September 28, 2015, the SEC awarded two foreign nationals 20% of the sanctions collected in a related enforcement action. (To protect the whistleblowers’ anonymity, the actual amount of the payment was not reported.) According to the SEC, this marks ‘the third matter in which the Commission has made an award to a whistleblower living or residing outside the United States, demonstrating the global scope of the agency’s whistleblower program’.

Globally, the SEC’s whistleblower program seems to have gained more traction in some jurisdictions than others. For example, year-on-year, the whistleblower office receives more tips from the UK than any other jurisdiction. And despite the overall decline in tips from abroad in 2015, the number of tips from the UK actually increased. (See the table below.)

 

Tips from the UK

 

So what does this mean for institutions with headquarters or operations outside the United States? The risk of employees reporting to the SEC remains high. The SEC touts impressive feats in its 2015 Annual Report:

  • The SEC has paid more than $54 million to 22 whistleblowers since the whistleblower rules went into effect in August 2011.
  • In 2015, the SEC received nearly 4,000 whistleblower tips, a 30% increase over the number of tips received in 2012.
  • In 2015, the SEC paid $30 million to a single whistleblower, more than $3 million to another, and ordered the maximum possible award—30% of the sanctions collected—to several others.
  • The SEC is aggressively protecting against employer retaliation and will take enforcement action to curb abuses, including the use of confidentiality agreements to prevent reports.

These factors will likely only encourage more whistleblowers to come forward. Despite an apparent dip in tips from abroad, the lure of a potential whistleblower bounty payment remains a strong incentive for would-be whistleblowers abroad.

Thus, institutions with headquarters or operations outside the United States must remain committed to developing policies and procedures designed to encourage internal reports, triage credible tips, and promptly address legitimate complaints. For some thoughts on how you can prepare, please read our article ‘Recent SEC award will entice foreign whistleblowers to come forward‘.

 

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