When Congress created the SEC Whistleblower program in the Dodd-Frank Act, one of the requirements was that the SEC’s Office of the Whistlblower would provide an annual report to Congress. On November 15, 2016, the SEC released its annual whistleblower report for the 2016 fiscal year (which ended September 30, 2016). The report shows that the agency continues to make substantial awards to whistleblowers, with six of the ten largest awards being made in FY 2016. The report also shows that the volume of whistleblower tips to the agency continues to increase as well. A copy of the agency’s FY 2016 report can be found here.
According to the report, through the end of the 2016 fiscal year, the agency had awarded whistleblowers more than $111 million to 34 whistleblowers. With the agency’s November 14, 2016 award of $20 million to a whistleblower (which came after then 2016 fiscal year end), the agency has now made whistleblower awards totaling over $130 million. In FY 2016 alone, the agency issued awards totaling $57 million to 13 whistleblowers, the total amount representing more than all of the award amount s made in preceding years combined. Of the ten largest awards in the history of the program (which dates to 2011, when the program commenced in the final weeks of the fiscal year), six were made during FY 2016.
The report says that the whistleblower program has had a “transformative effect” on the agency’s enforcement efforts, noting that the information and assistance that the whistleblowers who received awards have led to successful enforcement actions in which over $584 million in fiscal sanctions was ordered, including more than $346 million in disgorgement and ill-gotten gains.
In creating the whistleblower awards, the Dodd-Frank Act specified that for whistleblowers whose tips lead to successful Commission enforcement actions resulting in monetary sanctions over $1 million, the agency award the whistleblower an amount equal to between 10 percent and 30 percent of the sanctions collected. In the latest report (at page 15) the agency details the factors that can affect the size of the award. Factors that may increase the percentage include “the significance of the information provided by the whistleblower, the level of assistance provided by the whistleblower, the law enforcement interests at stake, and whether the whistleblower reported the violation internally through his or her firm’s internal reporting channels or mechanisms.” Factors that may decrease the award include “whether the whistleblower was culpable or involved in the underlying misconduct, interfered with internal compliance systems, or unreasonably delayed in reporting the violation to the Commission.”
The agency takes great pains to protect the anonymity of the whistleblowers to whom the awards are made. Nevertheless, the report includes some top level information that provides some descriptive background about the whistleblowers to whom awards have been made. Almost 60 percent of the whistleblowers who have received awards provided original information that caused the staff to open an investigation, while the remaining 40 percent received awards because their information significantly contributed to an ongoing investigation.
65 percent of the award recipients were insiders of the entity on which they reported information of wrongdoing to the SEC. Of these insiders, approximately 80 percent raise their concerns internally or understood that their supervisor or compliance personnel were aware of the violations, before reporting the information to the SEC.
About half of the award recipients were represented by counsel when the submitted their tips. Certain of the individuals that were not represented by counsel at the outset subsequently retained counsel. Almost one quarter of the recipients submitted their information anonymously through counsel.
Just as the number of awards is increasing, the number of tips the agency has received has increased as well. In each of the fiscal years in which the program has been in operation, the number of whistleblower tips has increased. From FY 2012, the first full fiscal year the program was in operation, to FY 2016, the number of whistleblower tips has increased by more than 40 percent. Since the program incepted in August 2011, the agency has received a total of 18, 334 whistleblower tips. In FY 2016, the agency received 4,218, representing an increase of 295 over FY 2015, an increase of 7.5%.
During FY 2916, the most common complaint categories reported by whistleblowers were Corporate Disclosures and Financials (22 percent), Offering Fraud (15%) and Manipulation (11%). The type of violation reported has remained generally consistent over the past five years. Since the beginning of the program, Corporate Disclosures and Financials, Offering Fraud and Manipulation have consistently ranked as the three highest allegation types reported by whistleblowers.
During FY 2016, the agency received reports from whistleblowers in 48 states, as well as from the District of Columbia and Puerto Rico. The states with the highest number of whistleblower reports were California (with 547 reports representing 12.9% of all reports); New York (296; 7.0%); and Florida (239; 5.6%).
During the life of the program, the agency has received whistleblower reports from individuals in 103 countries outside the U.S. In FY 2016, the agency received reports 464 individual reports from individuals in 67 foreign countries, representing about 11 percent of all reports. The countries with the highest number of whistleblower reports during FY 2016 were Canada (68 reports, representing 1.8% of the total and 14.6 of the foreign reports); the U.K. (63 reports, representing 1.5% of all reports and 13.5% of all foreign reports); and Australia (53 reports, representing 1.25% of all reports and 11.4% of all foreign reports).
During the fiscal year, the agency made it clear that it intends to focus on employers using confidentiality, severance and other types of agreements, or engaging in other practices, to interfere with individuals’ abilities to report potential wrongdoing to the SEC, as I noted in a prior blog post (here). During FY 2016, the agency brought charges against multiple companies for violating rule prohibiting company from taking any action to impede an individual from reporting violations to the SEC. In the report, the agency made it clear that it intends to continue to police for these types of efforts, as well as violations of the Dodd-Frank Act anti-whistleblower retaliation provisions.
The agency retains substantial firepower with which to make future awards. The funding pool that the Dodd-Frank Act created and out of which whistleblower reports are made retained at the end of FY 2016 more than $368 million, even after the very substantial number of awards the agency made during the fiscal year.
As I noted in a post earlier this fall commenting on six important things to keep in mind about agency’s whistleblower program and the impact that it has had, 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.