Matt Stock
Jason Zuckerman

In the following guest post, Matt Stock and Jason Zuckerman take a look at five ways that the SEC whistleblower program has affected both corporate compliance and the SEC’s enforcement efforts. Matt and Jason represent whistleblowers worldwide in whistleblower rewards and whistleblower retaliation claims. My thanks to Matt and Jason for allowing me to publish their article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Matt and Jason’s article.




Ten years ago, Congress created a whistleblower reward program at the U.S. Securities and Exchange Commission (SEC). Under the program, the SEC is required to issue awards to eligible whistleblowers who provide original information that leads to successful enforcement actions with total monetary sanctions in excess of $1 million. A whistleblower may receive an award of between 10 and 30 percent of the total monetary sanctions collected.


Since the inception of the SEC whistleblower program, whistleblower tips have enabled the SEC to recover more than $2.5 billion in financial remedies, including more than $1.4 billion in disgorgement and prejudgment interest, of which almost $750 million has been returned or is scheduled to be returned to harmed investors. The SEC has paid approximately $500 million to whistleblowers. The program has significantly improved the SEC’s ability to detect and halt fraud schemes, and it has forced companies to strengthen their compliance programs. While there are many ways in which the program can be improved, and while many registrants are still not responding to internal disclosures appropriately, it is worth reflecting on the impact of the SEC whistleblower program.


  1. Strengthening the SEC’s ability to detect, investigate, and punish fraud

SEC whistleblower incentives have enabled the SEC to uncover and halt ongoing fraudulent schemes that are hard to spot. This is an important contribution in light of the fact that the Madoff Ponzi scheme (and the SEC’s failure to act on Harry Markopolos’ tips to the SEC about the scheme) helped spur the creation of the whistleblower program. In a speech titled “The SEC as the Whistleblower’s Advocate,” former SEC Chair Mary Jo White noted:


Whistleblowers have provided us with original information leading to the opening of new investigations, “insider” views as to how a company approaches its disclosures to investors and highly technical analyses of rapidly evolving fraud schemes. Whistleblowers have also testified at TRO or asset freeze proceedings, enabling our staff to stop fraud schemes before investor losses mount; they have identified additional witnesses and encouraged those witnesses to come forward; and they have explained documents to enhance our understanding of cases.


Speech, then-SEC Chair Mary Jo White, The SEC as the Whistleblower’s Advocate (Apr. 30, 2015), available at


In addition, the SEC whistleblower program has significantly enhanced the SEC’s ability to uncover difficult-to-detect misconduct occurring abroad. Since the program’s inception, the SEC has received tips from whistleblowers in 123 countries outside the United States, claims have been filed from 72 countries, and the SEC has made substantial awards to foreign residents who have provided information. Speech, Andrew Ceresney, The SEC’s Whistleblower Program: The Successful Early Years (Sept. 14, 2016), available at  In FY 2019, three award recipients were located abroad or reported conduct that was occurring abroad. SEC 2019 Annual Report to Congress, Whistleblower Program,


Whistleblower tips also provide the SEC with a roadmap of potential misconduct that can significantly save time and resources in enforcement actions. This support is especially important in investigations that are very document-intensive, such as issuer reporting and disclosure cases. SEC 2015 Annual Report to Congress, Whistleblower Program,


  1. Strengthening corporate compliance programs

The SEC whistleblower program has also forced companies to strengthen their compliance programs. If a registrant ignores or fails to properly address an internal whistleblower tip, the whistleblower can report directly to the SEC, and the registrant could be penalized for failing to address the violation. Large whistleblower awards also have a deterrent value, in that they signal to would-be fraudsters that there is a high risk of getting caught.

While the SEC whistleblower program may spur some employees to report directly to the SEC, the SEC whistleblower rules incentivize internal whistleblowing. First, Rule 21F-6(a)(4) authorizes an increase in the award percentage where the whistleblower reported the possible securities violations through internal whistleblower, legal, or compliance procedures. Second, under Rule 21F-4(c)(3), a whistleblower can get credit for information disclosed by a company to the SEC where the information results from an internal investigation of the whistleblower’s disclosure to the company, as long as the whistleblower also discloses the information to the SEC within 120 days of providing it to the company. Indeed, approximately 80% of award recipients raised their concerns to supervisors or compliance personnel before reporting to the SEC.


  1. Strengthening compliance personnel’s ability to expose fraud

Compliance personnel are the first line of defense against fraud. When a company has a poor “Tone at the Top,” however, gatekeepers may be pressured to ignore, minimalize, or even cover up significant wrongdoing. For example, in order to expose the multi-billion-dollar accounting fraud at WorldCom, the company’s former vice president of internal audit, Cynthia Cooper, had to work at night behind closed doors to avoid detection from top management. See Julia Homer & David Katz, WorldCom Whistle-blower Cynthia Cooper, CFO: Human Capital & Careers (Feb. 1, 2008), 

Prior to the SEC whistleblower program, some gatekeepers had to risk their careers to expose such frauds. Now, under the SEC whistleblower program, compliance personnel, including auditors, officers, and directors, can submit tips anonymously to the SEC (if represented by counsel) and, in certain circumstances, be eligible for awards. Specifically, under Rule 21F-4, compliance personal can report to the SEC and be eligible for an award if:

  • they reasonably believe the disclosure is necessary to prevent conduct likely to cause “substantial injury” to the financial interest or property of the entity or investors;
  • they reasonably believe the entity is engaging in “conduct that will impede an investigation of the misconduct”; or
  • at least 120 days have passed either since they properly disclosed the information internally, or since they obtained the information under circumstances indicating that the entity’s officers already knew of the information.

Since the inception of the SEC whistleblower program, the SEC has issued three awards to compliance officers.


  • In August 2014, the SEC issued an award of “more than $300,00 to a company employee who performed audit and compliance functions and reported wrongdoing to the SEC after the company failed to take action when the employee reported it internally.” Press Release, SEC, SEC Announces $300,000 Whistleblower Award to Audit and Compliance Professional Who Reported Company’s Wrongdoing (Aug. 29, 2014),


  • In April 2015, the SEC awarded more than $1.4 million to a compliance professional who “reported misconduct [to the SEC] after responsible management at the entity became aware of potentially impending harm to investors and failed to take steps to prevent it.” Press Release, SEC, SEC Announces Million-Dollar Whistleblower Award to Compliance Officer (Apr. 22, 2015),


  • In March 2020, the SEC issued an award of $450,000 to a compliance professional who “reported concerns about the relevant conduct internally within the company and then waited 120 days before reporting to the SEC.” Press Release, SEC, SEC Awards $450,000 to Whistleblower (Mar. 30, 2020),


Permitting compliance personnel to submit whistleblower tips goes a long way in ensuring that companies cannot cover up fraud.


  1. Curbing the use of non-disclosure agreements and policies to impede whistleblowing to the SEC

Prior to the SEC whistleblower program, many public companies adopted and enforced broad non-disclosure agreements and policies that barred any and all disclosure of confidential information without any exception for disclosures to law enforcement or the government. And some even sued whistleblowers for lawful disclosures to the SEC and federal agencies. Recognizing that NDAs and the threat of SLAPP suits are a significant deterrent to whistleblowers coming forward, the SEC adopted an anti-gag rule, which provides that “[n]o person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing or threatening to enforce a confidentiality agreement … with respect to such communications.”  See Exchange Act Rule 21F-17(a), 17 CFR 240.21F-17(a).


And the SEC has stood firm against so-called “gag clauses” in NDAs and other employment-related agreements that have the effect of impeding disclosures to regulators and law enforcement. In particular, the SEC has taken nine enforcement actions against companies for violating the anti-gag rule, including provisions that:


(a) require an employee to represent that he or she has not assisted in any investigation involving the registrant;

(b) prohibit any and all disclosures of confidential information, without any exception for voluntary communications with the Commission concerning possible securities laws violations;

(c) require an employee to notify and/or obtain consent from the registrant prior to disclosing confidential information, without any exception for voluntary communications with the Commission concerning possible securities laws violations; or

(d) purport to permit disclosures of confidential information only as required by law, without any exception for voluntary communications with the Commission concerning possible securities laws violations.


Office of Compliance Inspections and Examinations, Examining Whistleblower Rule Compliance (Oct. 24, 2016). The SEC took the most recent anti-gag enforcement action against the perpetrators of a fraudulent securities offering for their attempt to resolve investor allegations of wrongdoing by conditioning the return of investor funds on the investors signing agreements that prohibited them from reporting potential securities laws violations to law enforcement.


  1. Raising the stakes for whistleblower retaliation

Prior to the enactment of the Dodd-Frank Act, which created the SEC whistleblower program, a registrant retaliating against a whistleblower for disclosing potential violations of federal securities laws faced the prospect of a potential retaliation lawsuit in which the whistleblower was typically limited to “make whole” relief. The anti-retaliation provision of the Dodd-Frank Act, however, renders whistleblower retaliation a violation of securities law, and the SEC can take enforcement action to penalize retaliation. Indeed, the SEC has levied penalties for retaliation in three enforcement actions and continues to identify and investigate retaliation against SEC whistleblowers. Although the Supreme Court’s decision in Digital Realty Trust, Inc. v. Somers, 138 S. Ct. 767 (2018) limits the scope of Dodd-Frank protected conduct primarily to disclosures to the SEC, enforcement actions for whistleblower retaliation have an important deterrent value.


Challenges Ahead for the SEC Whistleblower Program

In its first decade, the SEC whistleblower program has shown that is a critical tool for the SEC to protect investors, promote market integrity, and conserve limited enforcement resources. Yet the SEC whistleblower program faces several challenges, including:


  • An increase in tips without the resources necessary to investigate tips, creating a risk that the SEC is failing to act on tips concerning ongoing fraud schemes. As the SEC states in its most recent budget justification, the Enforcement Division “must be adequately staffed to address increasingly complex financial products and transactions, handle the increasing size and complexity of the securities markets, identify emerging threats, take prompt action to halt violations, and recover funds for the benefit of harmed investors.” The SEC receives approximately 20,000 tips, complaints, and referrals per year, including around 5,000 tips submitted to the SEC Office of the Whistleblower. Even assuming that many of the tips are meritless, the SEC lacks the resources to investigate many of them. Weak enforcement of the federal securities laws has significant consequences for investors and the economy. Indeed, prior periods of weak SEC enforcement resulted in massive corporate fraud that caused retail investors to incur tremendous losses and reduced capital formation. Better Markets estimates the 2008 financial crash and the economic catastrophe it caused cost the U.S. more than $20 trillion. At a June 2019 House Financial Services hearing examining proposals to strengthen enforcement against securities law violators, former SEC Deputy Chief Litigation Counsel Stephen J. Crimmins pointed out that the “SEC spends no tax dollars” (it is funded from registration fees) and “[i]t is just plain wrong to go cheap on investor protection, fair and orderly trading markets, and capital formation in the world’s largest and most important economy.” Congress should authorize a significant increase in the SEC’s budget, which would not require the use of taxpayer dollars.
  • Lower penalties imposed by the current leadership of the SEC, which will be compounded by the Supreme Court’s recent decision in Liu v. SEC, No. 18-1501, 2020 WL 3405845, (June 22, 2020). In particular, disgorgement in Foreign Corrupt Practices Act cases, which have been a large portion of SEC sanctions in recent years, could decline significantly if the SEC is required to return funds to the victims of an FCPA violation. Reduced disgorgement recoveries will result in lower awards and reduce the incentive for whistleblowers to take the significant risks entailed in disclosing fraud.
  • Liu will also delay the already slow pace of SEC investigations and litigation. In particular, Liu imposes several barriers to the SEC obtaining ill-gotten gains and creates several defenses that could tie up litigation for years. In particular, there will be significant litigation about whether disgorgement exceeds net profits and whether the SEC returned the ill-gotten gains to harmed investors. The 2019 Annual Report of the Division of Enforcement states that financial fraud and issuer disclosure cases took, on average, 37 months from opening to filing. These investigations are complicated and “take substantial time to complete for many reasons, including the volume of documents and witnesses [that the SEC] must examine and the need to obtain evidence from multiple parties.” Once a whistleblower’s tip has resulted in an enforcement action imposing more than $1 million in total sanctions, the whistleblower can apply for an award and then waits approximately 3 years to receive a preliminary determination responding to their award application. In other words, it takes six to eight years, or even longer, for a whistleblower to obtain an award. And the SEC has limited communication with the whistleblower during the investigation and the assessment of an award application. During this process, some whistleblowers suffer retaliation and other hardships, as confirmed by several recent SEC whistleblower awards. See, e.g., SEC, Order Determining Whistleblower Award Claim, Release No. 88689 (Apr. 20, 2020), (“Claimant suffered a unique hardship as Claimant was terminated soon after raising concerns internally about the conduct in question with Claimant’s supervisor.”); SEC, Order Determining Whistleblower Award Claim, Release No. 88547 (Apr. 3, 2020),  (“Claimant assisted with the Commission’s investigation despite implied threats made to Claimant” and “Claimant suffered hardships as a result of Claimant’s whistleblowing.”); SEC, Order Determining Whistleblower Award Claim, Release No. 88507 (Mar. 30, 2020), (“Claimant suffered unique hardships as a result of Claimant’s internal reporting.”).


Although the SEC Office of the Whistleblower is making progress reducing a backlog of award applications, the current process could discourage whistleblowers from coming forward. The SEC should consider options to promote the type of collaboration with qui tam whistleblowers that has enabled the Department of Justice to recover more than $40 billion for taxpayers. And Congress should enact the Whistleblower Programs Improvement Act, which would protect corporate whistleblowers who report potential securities or commodities fraud to their employers.


At a time of tremendous volatility and prevalent fraud, it will be critical for the SEC and CFTC to continue enlist whistleblowers to halt fraud schemes and foster market integrity.