One of the signature features of the Dodd-Frank Act was its creation of an SEC Whistleblower program. Under the program, the SEC can award whistleblowers a bounty of between ten percent and thirty percent of any recoveries the SEC makes in excess of $1 million as result of the information whistleblower provided. The program went into effect in 2011, and the agency immediately began receiving a huge volume of whistleblower reports. Over time the agency has made a number of awards, including the September 2014 award of $30 million, which is still the largest award under the whistleblower program.
While the program has been in operation now for several years, it recently kicked into high gear and the program has passed a number of important milestones. The trend lines suggest that the SEC whistleblower program is going to be an increasingly important part of the corporate liability landscape, and for that reason there are a number of important things to keep in mind.
The Agency’s Whistleblower Program Milestones
If there were any doubt about the importance of the whistleblower program to the SEC, the agency put that notion to rest on August 30, 2016, when it announced in a press release that, with the latest $22.5 million award, the aggregate amounts awarded in the program’s five year history have exceeded $100 million. With the agency’s more recent $4 million award, the program has now awarded more than $111 million to 34 whistleblowers.
The $22.5 million award in August, the second-largest in the program’s history, went stemmed from Monsanto’s $80 million February 2016 settlement with the SEC. The whistleblower bounty award went to an ex-Monsanto executive, who blew the whistle on the alleged accounting violations related to the company’s trademarked weedkiller, Roundup. The SEC alleged, based on the whistleblower’s report, that the company did not properly account for rebates the company paid to retailers and distributors.
In its August 30 press release, the agency reported that the in the cases in which it has made whistleblower awards, the agency has recovered over $504 million in sanctions, including more than $346 million in disgorgement. The press release also stated that as of August 2016 the agency has received more than 14,000 whistleblower tips from individuals in all 50 states, the District of Columbia, and 95 foreign countries.
All of these facts and figures are impressive, and there are several important considerations to keep in mind.
First, though the agency has made a number of sizeable awards during the course of the program’s five year history, the pace of the agency’s awards is definitely increasing. Of the ten largest awards the agency has made, six have been made since March 2016. The awards during the period March 2016 to the present represent more than half of the amounts the agency has distributed under the whistleblower program.
Second, while the agency has made a practice of broadcasting its sizeable whistleblower bounty awards, it has also been scrupulous in protecting the identities of the anonymous whistleblowers. This track record communicates a multi-purpose message to prospective future whistleblower – that is, there is potentially a lot of money to be made in filing a whistleblower report, and the whistleblower can feel secure that his or her identity will be protected. As SEC Enforcement Division Director Andrew Ceresney said in a September 14, 2016 speech, “We are committed to ensuring that, consistent with legal requirements, whistleblowers’ identities are protected and whistleblowers should be assured that we will do all we can to protect them.”
Third, the agency has made it clear that the protection it will afford whistleblowers is not limited just to protecting their anonymity; the SEC has made it clear it will punish companies that retaliate against whistleblowers. In an April 30, 2015 speech, SEC Chair Mary Jo White said that “[w]e want whistleblowers — and their employers — to know that employees are free to come forward without fear of reprisals.” Indeed, the SEC recently sanctioned several companies who attempted to compel departing employees to surrender their ability to make whistleblower reports as part of the companies’ standard severance agreements. The SEC has made it clear not only that it will protect whistleblowers, but that it is going to crack down on attempts to discourage whistleblowing. Along those lines, on September 28, 2016, the agency announced that Anheuuser-Busch InBev had agreed to pay $6 million to settle charges that the company had violated the FCPA and attempted to “chill” a whistleblower.
Fourth, going forward, the SEC may be under pressure to pursue enforcement actions against corporate executives in response to whistleblower reports. This pressure is due in part to publicity that has followed some high profile events. Most notably, Deutche Bank’s Eric Ben-Artzi very publicly refused his $8.25 award for make a whistleblower report about the company’s financial accounting, as a protest for the SEC’s failure to go after the executives responsible for the wrongdoing. Ben-Artzi wrote an op-ed piece in the Financial Times in which he said that he “will not join the looting of the very people I was hired to protect.”
Fifth, as perhaps the most telling sign of the whistleblower program’s success, securities regulators in other countries have begun to adopt their own whistleblower programs, in some cases directly modeled on the Dodd-Frank whistleblower program.
Sixth, it is not the only federal agency actively making whistleblower awards. In April 2016, the U.S. Commodities Futures Trading Commission awarded more than $10 million to a whistleblower, the third award the agency made under its whistleblower program, and agency’s largest to date. (The CFTC’s whistleblower program was also created by the Dodd-Frank Act.)
Anyone who is concerned about the potential liabilities of companies and their executives will want to be aware of the whistleblower program’s growing momentum. The likelihood is that the whistleblower program is likely to be an increasingly important part of the corporate liability landscape.