What is the SEC Whistleblower Program?
The SEC Whistleblower Program came into effect on July 21, 2010, when President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law. As well as offering robust protections for employees and anonymous reporting, the program rewards people who submit tips on violations of federal securities laws.
Whistleblowers and financial awards in the United States – a brief overview
In the United States, Section 21F directs the SEC to provide monetary awards to eligible individuals who voluntarily provide original information leading to successful Commission enforcement actions that result in monetary sanctions over $1 million and successful related actions. Financial awards must be made in an amount that is 10% or more and 30% or less of the monetary sanctions collected. Since the inception of the whistleblower program, the SEC has awarded more than $1.1 billion to 214 individuals.
Record Number of Claims Processed & Awards Paid
The Commission awarded approximately $564 million to 108 individuals in FY 2021 – the largest dollar amount and the largest number of individuals awarded in a single fiscal year since the start of the whistleblower program. In fact, the Commission made more whistleblower awards in FY 2021 than in all years combined throughout the history of the whistleblower program. From FY 2011 through to FY 2020, the Commission made approximately $562 million in whistleblower awards to 106 individuals.
The Commission’s Two Largest Awards To Date
In addition to FY 2021 seeing the Commission presenting more awards to whistleblowers than in all previous years combined, it also featured the two largest awards to date. In October 2020, the Commission announced the largest financial award in the program’s history, a $114 million award to an individual that consisted of $52 million in connection with an enforcement action and $62 million from a related action by another agency. In this case, the whistleblower repeatedly reported concerns internally before alerting the Commission and other agencies to the violations which prompted the opening of investigations. The individual continued to provide substantial assistance throughout the investigations which proved critical for success.
September 2021 saw another $114 million awarded to two whistleblowers with the first receiving $110 million and the second obtaining $4 million. The former provided a significant contribution to an existing investigation through the application of specialised skill. The latter also provided information that significantly contributed to the investigation’s success, though it was more limited in comparison to the first whistleblower.
Type of Whistleblower Allegations
The report also shed light on the type of allegations that whistleblowers are reporting. In FY 2021, the most common complaint type received was manipulation which accounted for a quarter of the total. Interestingly, initial coin offering & cryptocurrencies was only added to the complaint list in the fourth quarter of 2018.
- 25% - Manipulaton
- 16% - Corporate disclosures & financials
- 6% - Trading & pricing
- 6% - Initial coin offering & cryptocurrencies
Record-Breaking Year For Tips
In the United States, Section 21F directs the SEC to provide monetary awards to eligible individuals who voluntarily provide original information leading to successful Commission enforcement actions that result in monetary sanctions over $1 million and successful related actions. Financial awards must be made in an amount that is 10% or more and 30% or less of the monetary sanctions collected. Since the inception of the whistleblower program, the SEC has awarded more than $1.1 billion to 214 individuals.
Whistleblower Tips by Geographic Origin
As mentioned above, the Commission receives whistleblower complaints from individuals across the United States as well as internationally. Within the US, the highest volume of domestic tips was recorded in California, Maryland, Florida, New York and Texas during FY 2021. Outside the US, whistleblowers in Canada, China and the United Kingdom accounted for the highest number of international tips. While submissions originated in 99 countries in FY 2021, 133 countries are on record since the inception of the program.
Rule Amendments For Whistleblowers
In September 2020, the Commission adopted Whistleblower Rule Amendments which increased efficiencies around the review and processing of whistleblower award claims. Part of this included a presumption setting awards at a maximum 30% of the monetary sanctions collected for awards under $5 million, which is applicable in the majority of cases.
A new summary disposition process was also adopted for straight-forward denials which enabled the Office of the Whistleblower provide an initial response to claimants more rapidly. A provision was also adopted which will see claimants who submit three or more frivolous award claims permanently banned from the whistleblower program.
In FY 2021, this was seen when the Commission issued permanent bar orders against two serial submitters who sent hundreds of frivolous award applications. The award states that such bar orders are important as they free up more time and resources to handle honest claims.
Whistleblower tips that are specific, credible and timely, as well as being accompanied by corroborating documentary evidence, are more likely to be forwarded to investigative staff for further analysis or investigation. On the other hand, tips making banket assertions or general inferences based on market events are less likely to be investigated.
FY 2021 Results in Perspective
The report states that the results “reflect the ongoing commitment by staff in the Office of the Whistleblower (OWB) and across the Commission to process whistleblower award claims more quickly, despite the continued challenges due to Covid-19”. SEC Chair Gary Gensler recently noted that “the assistance that whistleblowers provide is crucial to the SEC’s ability to enforce the rules of the road for our capital markets.”
His remarks are underscored by the fact that information from whistleblowers have resulted in orders for nearly $5 billion on monetary sanctions since the start of the program, some $3.1 billion of which is disgorgement of ill-gotten gains and interest.
Summing Up
The whistleblowers who received financial awards in FY 2021 included those who helped initiate investigations that allowed millions of dollars to be returned to harmed investors. The report elaborated on their efforts, stating that “we recognise and applaud the courage and commitment of the hundreds of whistleblowers who submitted valuable information under the SEC’s whistleblower program, and we anticipate that the awards made in FY 2021 will continue to incentivise others to come forward promptly and report high-quality information regarding possible securities laws violations to the Commission”.
The report remarks that the success of the Commission’s whistleblower program in FY 2021 demonstrates that it is a vital element of enforcement efforts and that the awards will continue to encourage whistleblowers to come forward with credible information.
