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SEC makes its annual whistleblower report to Congress – SPOILER ALERT: BEST YEAR EVER!

Posted  November 20, 2020

We already know it has been a banner year for the Securities and Exchange Commission’s Whistleblower Program (fiscal year ending September 30).  As we previously reported, the record-breaking year included roughly $175 million in awards to 39 whistleblowers, with 15 awards in the month of September alone.  And this does not even include the $114 million blockbuster award the Commission made just three weeks ago, shattering the previous record $50 million award the agency made in June.

Nor do the simple numbers show the warm and ever-expanding embrace the SEC has shown whistleblowers, making it clear the agency wants to hear from all whistleblowers of all shapes and sizes.  As reflected in its two most recent awards, this would include company outsiders who provide independent analysis of publicly available information; and overseas whistleblowers reporting on misconduct here or abroad (assuming a direct U.S. connection).

But lest there be any confusion or doubt as to the high watermark the SEC Program has reached over the past year, here are the greater details as the Commission specifically has laid them out to Congress in its 2020 Annual Report.

Starting with the basics, the $175 million in awards was the highest of any year and accounted for roughly one-third of the $562 million in total awards since the Program began (not counting last month’s $114 million award).  Likewise, the 39 whistleblowers who received those awards were triple the number awarded in 2018, the next highest year, and represented almost 40% of all the whistleblowers awarded under the Program.

The below charts visually demonstrate how dramatic these increases were compared to the amount and number of awards over the past few years.

But it was not just a record year for the amount and number of whistleblower awards.  The agency also reached a milestone with the number of whistleblower tips it received — more than 6,900.  That represented a 31% increase from 2018, the second-highest tip year.  These tips came in from every state, with whistleblowers from California, Pennsylvania, New York, Florida, and Texas leading the way.  They also came in from 78 other countries, with the most originating from Canada, the United Kingdom, and China.

Several other notable nuggets came out of the SEC’s Annual Report:

  • Roughly 40% of the individuals who received awards this year were company outsiders, not affiliated with the company on which they were reporting.
  • With respect to the 60% who were company insiders, roughly 80% of them raised their concerns internally to their supervisors or through internal reporting mechanisms before reporting to the SEC.
  • Roughly 70% of award recipients to date provided original information that caused the SEC to open an investigation, with the balance providing original information that “significantly contributed” to an already existing agency investigation.
  • Roughly two-thirds of the awards this past year were at or near the statutory maximum award amount of 30%.

Finally, the SEC provided more details on the amendments to the Whistleblower Rules the agency adopted on September 23 and which go into effect on December 7.  According to the SEC, these new rules were “designed to provide greater clarity to whistleblowers and increase the program’s efficiency and transparency.”

These new rules include: (i) a presumption of a 30% award for SEC recoveries of $5 million or less; (ii) expanding the reach of awards based on related settlements by DOJ; (iii) clarifying (perhaps limiting) the reach of awards based on “related actions” brought by other enforcement agencies; and (iv) requiring that whistleblowers report “in writing” to the SEC to qualify for retaliation protection.

There certainly are several pro-whistleblower features of these new rules.  But the Commission was sharply divided on the new rules — only passing them by a 3-to-2 vote — and whether they would ultimately inure to the benefit of whistleblowers.  Some critics were more generally troubled by the notion of in any way messing with a Program that has done so well in encouraging whistleblowers to play a critical role in the SEC’s enforcement regime.

Time will tell on the true impact of these new rules.  But one thing is for certain.  The SEC is strongly committed to its Whistleblower Program and the results — which get better and better every year — powerfully bear that out.  Or as SEC Whistleblower Chief Jane Norberg put it in her introduction to the Annual Report:

FY 2020 truly was a historic year that demonstrated the Commission’s dedication to the whistleblower program, which continues to have a significant impact on the whistleblower Commission’s enforcement efforts and protection of retail investors.  We hope the awards made in FY 2020 continue to incentivize whistleblowers to come forward and report specific, timely, and credible information to the Commission.

So if you believe you might have useful information regarding potential securities fraud violations and would like to speak to an experienced member of the Constantine Cannon whistleblower lawyer team, please do not hesitate to contact us.  We have said it before and we will say it again — when it comes to whistleblowers reporting to the SEC, there has never been a better time to say something if you see something.

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Tagged in: Financial and Investment Fraud, Importance of Whistleblowers, SEC Whistleblower Reward Program, Securities Fraud, Statistics, Whistleblower Rewards,