Whistleblower Annual Report: SEC’s Whistleblower Program Continues to have a ‘Transformative Effect’

Kurt Wolfe

The SEC’s Office of the Whistleblower recently released its 2016 Annual Report to Congress. In it, the Chief of the Whistleblower Office touted the ‘transformative effect the SEC’s whistleblower program has had on the agency’s enforcement program’. And, by all accounts, it was indeed a banner year for the Whistleblower Office.

According to the Annual Report, in FY2016 the SEC received a record-number of whistleblower tips, complaints, and referrals—more than 4,000. The Whistleblower Office also authorized six of its “Top Ten” whistleblower awards. And the Whistleblower Office broke new ground by bringing charges against several companies for violating the SEC’s whistleblower protection rules.

 

The Whistleblower Program is having a “transformative effect” on the SEC’s enforcement initiatives

In her ‘Message from the Chief of the Office of the Whistleblower’, Ms. Norberg maintains that ‘the invaluable information and assistance whistleblowers have provided to the agency … underscores the program’s extraordinary impact on the agency’s enforcement initiatives’. The added value is plainly demonstrated, she says, by the amount of money returned to investors as a result of SEC enforcement actions aided by whistleblowers—$584 million in financial sanctions have been ordered in such matters.

 

(a) The SEC authorized six of its “Top Ten” whistleblower awards in FY2016

One driver of the Whistleblower Office’s success seems to be the steady stream of headlines relating to whistleblower awards. In FY2016, the Whistleblower Office authorized six of its ten largest whistleblower awards to date, including:

(1) an August 2016 award in the amount of $22 million (the second-largest whistleblower award);

(2) a June 2016 award in the amount of $17 million (the third-largest whistleblower award);

(3) a May 2016 award in the amount of $5-6 million;

(4) a September 2016 award in the amount of $4 million;

(5) a May 2016 award in the amount of $3.5 million; and

(6) a March 2016 award in the amount of $2 million (split among three whistleblowers).

The profiles of award recipients are wide-ranging and include awards to former employees, an employee who provided new information that bolstered an ongoing investigation, and a company outsider who provided a detailed analysis of potential securities law violations.

 

(b) The number of whistleblower tips continues to grow

The Whistleblower Officer received 4,218 tips in FY2016—a record high. The tips received last year constitutes a 13% increase over the number of tips received in FY2015 and a 40% increase over the number of tips received in FY2012, the first full year for which the SEC collected whistleblower data. The chart below depicts the year-on-year increase in the total number of tips received by the Whistleblower Office, a trend that is expected to continue.

 

 

(c) The number of tips from abroad rallied in FY2016

Since the program’s inception, the Whistleblower Office has received tips from individuals in 103 countries. In FY2016 alone, the office received tips from whistleblowers in 67 foreign countries.

We have previously analyzed the number of tips the SEC receives from whistleblowers who live outside the United States. Notably, the SEC’s largest-ever whistleblower award ($30 million) was awarded to an individual who lives outside the U.S. In recent years, the Whistleblower Office has publicly stated its desire to encourage would-be whistleblowers who live outside the U.S. to come forward. Generous awards have played a role in enticing whistleblowers who live abroad—particularly whistleblowers who live in countries that have not adopted a whistleblower rewards program.

Despite its efforts to promote the program abroad, in FY2015 there was a slight dip in the number of tips from foreign nationals. In FY2016, however, the number of tips from whistleblowers who live outside the United States rebounded. The chart below illustrates the resurgence of tips from abroad.

 

According to the Annual Report, in FY2016 the highest number of whistleblower tips came from individuals in Canada, the United Kingdom, and Australia. From 2011-2015, the top five countries from which whistleblower tips originated were the United Kingdom (291), Canada (216), China (164), India (153), and Australia (97).

 

The SEC is aggressively enforcing its whistleblower protection rules

For several years, the SEC has touted whistleblower protection as a top priority for the Office of the Whistleblower. And in FY2016, the Whistleblower Office’s commitment to protecting whistleblowers was demonstrated through several matters spanning a broad spectrum of conduct that might have a chilling effect on would-be whistleblowers.

The SEC brought a first-of-its-kind enforcement action against a company that retaliated against an employee for reporting a possible securities law violation. According to an SEC press release, the company ‘agreed to pay a half-million dollar penalty for firing an employee with several years of positive performance reviews because he reported to senior management and the SEC that the company’s financial statements might be distorted’.

The SEC also brought cases against companies that entered into severance or separation agreements that purported to restrict outgoing employees’ rights to communicate with the SEC and/or recover an award from the SEC.

According to the Annual Report, ‘Assessing confidentiality, severance, and other kinds of agreements that may stifle a would-be whistleblower from reporting his or her information to the agency and that strip away the very incentives Congress intended for the program will continue to be a top priority for the SEC’s Office of the Whistleblower’.

 

The SEC announced another “Top Ten” award after the Annual Report was released

The Whistleblower Office’s momentum is typified, perhaps, by the announcement of another “Top Ten” whistleblower award after the Annual Report was released. On December 5, 2016, the SEC announced an award of $3.5 million to a whistleblower who came forward with original information that led to an SEC enforcement action. Thus, as of December 5, the SEC’s “Top Ten Awards” are as follows:

 

 

According to the SEC, “The SEC’s whistleblower program has now awarded approximately $135 million to 36 whistleblowers since issuing its first award in 2012. SEC enforcement actions from whistleblower tips have resulted in more than $874 million in financial remedies.”

 

Conclusion

The whistleblower program continues to be immensely successful at attracting tips. And the Whistleblower Office and Division of Enforcement are effectively triaging whistleblower tips to initiate or reinforce enforcement actions. We expect these trends to continue, and we will keep you updated on future developments relating to the SEC’s whistleblower program.

 

Read comments below or add a comment

Leave a comment

Your email address will not be published. Required fields are marked *