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SEC Whistleblower Program Continues to Gain Steam With No Signs of Slowing Down

Posted  November 30, 2012

By Jason Enzler

The SEC just released its second annual report on its whistleblower program (available here).  While there are no major surprises, there are some interesting facts to take away and even some trends that can be deduced.  Consistent with our report in a previous post, the number of attorneys staffing the SEC’s Whistleblower Office has doubled.  See Business Is Booming At The SEC Whistleblower Office As Tips Continue To Flood In.  This must be a welcome relief for the corporate watchdog which has been inundated with an ever-increasing number of whistleblower tips.  In June, the Whistleblower Office was on pace to receive roughly 2,550 tips this year, but the report shows that the SEC has received 20% more (3,001 tips).

A comparison of the colorful graphs appended to this year’s report and last year’s (available here) offer some additional insights.  Appendixes A for the two years, which document the allegations contained in the tips and when they were submitted, show a consistent pattern.  The majority of the tips deal with Corporate Disclosure and Financials, Offering Fraud, and Manipulation.  Insider Trading and Trading and Pricing round out the top five categories for both years.  The percentage of tips dealing with violations of the Foreign Corrupt Practices Act are almost identical, though that may change if the SEC’s recent guidance better informs potential whistleblowers on what constitutes such violations, as we postulated in a recent post.  See Everything You Want To Know About The Foreign Corrupt Practices Act And More.

Likewise, Appendixes B, which show which states the tips originated from, are fairly consistent; the four largest sources both years have been California, New York, Florida, and Texas.  But just as the number of tips appears still to be increasing, so too does the global reach of the program.  In Appendix C to the previous report, there were tips from only 11 countries other than the U.S.  This year, that number jumped to 49.  Among the most conspicuous of these new additions is India, which last year was not included but this year jumped to third place with 33 tips.

Given the demonstrated surge in whistleblower activity, it is unlikely that the rate of tips submitted to the Whistleblower Office will level off anytime soon.  This is particularly true given that the SEC has yet to issue its first major whistleblower award.  In fact, it has only issued one award so far and despite all the fanfare it received, it was only for a meager $50,000.  See The SEC Whistleblower Office Is Open For Business.  The rate of tips will surely reach even greater heights once the SEC begins to tap into the $450 million it has in reserve for all of the pending whistleblower claims on which the agency has yet to formally act.

Tagged in: Insider Trading, SEC Whistleblower Reward Program,