SEC Whistleblower Program Records Best Year

The Securities and Exchange Commission (SEC) Whistleblower Program just had its most successful year.

Jordan Thomas Labaton Sucharow

Jordan Thomas
Labaton Sucharow

In its annual report to Congress, the SEC reported it issued awards totaling over $57 million in 2016 – higher than all award amounts issued in previous years combined.

The Office of the Whistleblower (OWB) received over 4,200 tips this year, which is a more than 40 percent increase in whistleblower tips since 2012.

The SEC took action in its first ever stand-alone whistleblower retaliation case.

Earlier this year the SEC announced it had surpassed the $100 million mark in awards to whistleblowers since the inception of the program, it now stands at over $111 million awarded to 34 whistleblowers.

A total of 18,000 tips were filed in past five years.

The information and assistance provided by the 34 whistleblowers who received awards under the program led to successful SEC enforcement actions in which over $584 million in financial sanctions.

The most tips were filed were for corporate disclosure violations (938), offering fraud (646), stock manipulation (472) and insider trading (262).

“We believe that the continued payment of significant awards, like those made this past year, will continue to incentivize company insiders, market participants, and others with knowledge of potential securities law violations to come forward and report their information to the agency,” said Jane Norberg, Chief, of the SEC’s Office of the Whistleblower.

The SEC also sent a strong message to companies that gag potential whistleblowers.

The agency brought charges against a company for retaliating against an employee for reporting a possible securities law violation and charges against multiple companies for impeding their employees’ ability to report to the SEC through severance agreements and other practices.

Tips from foreign whistleblowers are on the rise. According to the report, whistleblowers from 67 foreign countries filed claims with the SEC in 2016.

After the United States, the SEC received the highest number of whistleblower tips in from individuals in Canada, the United Kingdom, and Australia.

Since the program was established, the SEC has received claims from whistleblowers who reside in 103 countries outside the United States.

“The SEC whistleblower program is vital to the health of U.S. markets,” said Stephen M. Kohn, the executive director of National Whistleblower Center.  “It is the backbone of an enforcement program that holds fraudsters accountable, awards voluntary compliance and builds investor confidence. The program continues to make progress in paying rewards and supporting whistleblowers who suffer retaliation. The SEC Whistleblower Office is a model for other agencies to follow.”

When asked what impact the incoming Trump administration would have on the program, Labaton Sucharow partner Jordan Thomas said that any efforts to undermine the program “are likely to be unsuccessful and opposed by a broad coalition of law enforcement, regulatory and community organizations.”

“The program has been responsible for a quiet revolution in securities enforcement,” Thomas said.  “Reasonable people can disagree about regulations, but low-cost and effective enforcement of the securities laws has always been a bipartisan goal.”

“Overall, tips rose by 8%, which is the same percentage increase we saw from 2014 to 2015,” Thomas said. “Generally, I believe that growth of the program will continue at this rate.”

“Foreign Corrupt Practices Act violations reporting is also way up from 186 last year to 238 this year – a 27.9 percent jump,” Thomas said.

“Forty percent of whisteblowers received an award for reporting information that significantly contributed to an ongoing investigation. Prior to Dodd-Frank, these sort of tips and assistance were rarely received – and demonstrate the game-changing nature of whistleblowers to the SEC enforcement program.”

“Thirty-five percent of award recipients were outsiders to the company that they reported on.  Again, these sort of tips were exceedingly rare prior to Dodd-Frank.”

“About 80% of award recipients reported their concerns internally,” Thomas said. “A significant concern of Corporate America is that the SEC Whistleblower Program would undermine internally reporting. This statistic suggests that this has proven to be unfounded.”

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