News

Success of the SEC Whistleblower Program

December 12, 2016
Categories: Anti-corruption, Bribery, Corruption

Fiscal year 2016 was a record year for the U.S. Securities and Exchange Commission (“SEC”) Whistleblower Program. The Program, which went into effect in 2010 under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank”), allows for the distribution of monetary awards to eligible individuals who voluntarily provide original information that leads to successful SEC enforcement actions resulting in monetary sanctions over $1 million USD. Awards range from 10 percent to 30 percent of the monetary sanctions collected.

In addition to establishing an awards program to encourage tip reporting, whistleblower protection is offered. Retaliation is prohibited against whistleblowers who report wrongdoing, if such reporting is rooted in reasonable belief that a possible securities violation has occurred, is in progress, or is about to occur.

Increased Reporting

Per the SEC’s Office of the Whistleblower annual report to Congress, the Program received more than 4,200 tips in fiscal year 2016, up from a reported 4,000 tips in fiscal year 2015. More notably, the 2016 statistics represent a 40% increase in the number of tips since 2012, at which time data for the program was first formally tracked. This year’s increase in total reported tips was attributed by the Office of the Whistleblower to increased awareness of the program.

Monetary Awards

Since 2011, 34 whistleblowers have been awarded over $110 million USD through the Program. In fiscal year 2016 alone, whistleblower awards exceeded $57 million USD, accounting for more than all other awards issued in the program’s history combined. Major awards from 2016 included:

  • $22 million USD award in August 2016 “to a company insider who provided information about a well-hidden securities violation that would have been unlikely to have been detected but for the whistleblower’s information.”
  • $17 million USD award in June 2016 “to a former company employee whose detailed tip substantially advanced the agency’s investigation and ultimate enforcement action, […] enabl[ing] the investigative staff to conserve time and resources and gather strong evidence supporting the Commission’s case.”
  • $5 million + USD award in May 2016 “to a former company insider whose detailed tip led the agency to uncover securities violations that would have been nearly impossible for it to detect but for the whistleblower’s information.”

Six of the ten largest whistleblower awards were made by the SEC during FY 2016. The highest award made to date under the Program was issued in September of 2014, for over $30 million USD.

Trends

New trends may be on the horizon with regard to the types of allegations reported, identities of individuals reporting, as well as the countries of origin of those reporting suspected wrongdoing. In fiscal year 2016, those allegations reported that involved violations of the Foreign Corrupt Practices Act (“FCPA”) rose to 238 total, up nearly 30% from last year. Further, a steady increase was noted in the number of whistleblower award recipients that were company insiders at the time of submission: from the initiation of the Program through 2016, approximately 65% of total award recipients have been company insiders. This percentage represents a nearly 15% increase since fiscal year 2015. According to the Office of the Whistleblower, such statistics dispel a common criticism of the Program, that the bounty system undermines internal reporting lines and incentivizes immediate use of external channels. Of those award recipients who were insiders at the time of tip submission to the SEC, a reported 80% of those individuals had previously raised concerns internally to supervisors or compliance personnel at their organization prior to externally reporting the misconduct to the agency.

The Program is also making strides in the realm of global outreach. Foreign nationals accounted for almost a quarter of all whistleblower award recipients in fiscal year 2016. In addition, the SEC received nearly 10% of its whistleblower tips from individuals in 67 countries worldwide, with most international tips reportedly from Canada, the United Kingdom and Australia.

Enforcement, Generally

SEC Chair Mary Jo White referred to the Whistleblower Program as a “game changer” in 2015 – these have been sentiments reaffirmed by the Office of the Whistleblower following fiscal year 2016. The Program’s effect has been noted as transformative to the agency’s overall enforcement capacity. As such, 2016 was also a record year for FCPA enforcement: as of early December, more than 20 civil enforcement actions were resolved by the SEC, resulting in some of the largest penalties to date.

The SEC’s Office of the Whistleblower report is available in full here.

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