It was only this past June when the SEC made what was at the time the largest ever whistleblower award — $50 million – to a single individual. As it has turned out, that record stood for only a short time, as on October 22, 2020, the SEC shattered the prior record, paying out a whopping whistleblower bounty of $114 million to a single individual. The SEC’s award order is heavily redacted to protect the identity of the whistleblower so relatively is known about the circumstances surrounding the award, but even so the sheer size of the award makes a serious statement. The SEC’s October 22, 2020 award order can be found here. The SEC’s October 22, 20202 press release about the award can be found here.
Under the SEC Whistleblower Program established in the Dodd-Frank Act, individuals who provide the agency with original leads about illegal conduct, or give the agency information that significantly advances an open investigation, may receive a bounty of between 10% and 30% of the total fines collected.
The recent $114 million award is actually a composite award, as the total amount of the award represents a combination of an amount awarded by the SEC and an amount awarded by another unnamed agency. The SEC’s press release states that the $114 million award “consists of an approximately $52 million and an approximately $62 million award arising out of the related actions by another agency.”
The SEC scrupulously seeks to protect the identity of whistleblowers and so the public version of the whistleblower award is heavily redacted. Almost the entirety of the second page of the award order — where the “covered action” and “related actions” are described – is redacted. About the only information in the redacted order of any interest is the fact that in addition to granting the successful whistleblower the massive award, the agency also denied the award claims of three other individuals. With so many redactions, it is hard to know what to make of the award and of the award denials.
The SEC’s press release about the award does provide a little bit of color about the award and the underlying circumstances. The press release quotes the head of the SEC Office of the Whistleblower a saying “The actions of the whistleblower awarded today were extraordinary. After repeatedly reporting concerns internally, and despite personal and professional hardships, the whistleblower alerted the SEC and the other agency of the wrongdoing and provided substantial, ongoing assistance that proved critical to the actions.”
As the October 22, 2020 Law 360 article about the award notes, this humungous award comes just weeks after the SEC changed its rules concerning whistleblower award sizes. Among other things, the rules changes put in place the authorization for the agency to use its discretion to reduce the size of amounts awarded. The Law360 article contains several comments about the timing of the recent changes and of this recent very large award; the article quotes one commentator as saying, with respect to the recent rules changes, that “It almost seems preemptive,” adding that “They knew this huge award was coming and they wanted to preemptively address this question of how much is too much by finalizing these rules that say ‘we will decide within existing guardrails.’”
It is not possible from the public documents to find out the identity of the company involved or the nature of the underlying legal violations. However, as John Jenkins notes on TheCorporateCounsel.net blog (here), that has not stopped the online speculation about the company involved. The Law360 article to which I linked above attributes comments to unnamed commentators as saying that given the size of the award “the matter was likely a joint foreign corruption probe with the U.S. Department of Justice that concluded years ago and netted as much as a billion dollars or more.” Another commentator is quoted as saying “Whatever this was, it had to have been incredibly significant to trigger an award of this caliber.”
In any event, the recent massive award does underscore the agency’s commitment to the entire whistleblower program. Indeed, the SEC’s press release quotes SEC Chair Jay Clayton as saying “Today’s milestone award is a testament to the Commission’s commitment to award whistleblowers who provide the agency with high-quality information.” Whistleblowers, Clayton is quotes as saying, “make important contributions to the enforcement of securities laws,” adding that “we are committed to getting more money to whistleblowers as quickly and as efficiently as possible.”
According to the SEC’s press release about the recent award, the agency has awarded a total of approximately $676 million to 108 individuals since issuing its first award in 2012. The recent blockbuster aware represents about one-sixth of the aggregate total of all awards made since the program’s inception. All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money is taken or withheld from harmed investors to pay whistleblower awards. The SEC’s statistics on the whistleblower program can be found here.
While there is much that is not known about the circumstances behind this recent award, there is one thing that everyone knows for certain – this award represents a massive amount of money for one individual to receive. The possibility for one individual to receive a gigantic monetary reward like this provides an enormous incentive for prospective whistleblowers. I don’t know about the rest of you, but a $114 million jackpot would certainly change my lifestyle. This sheer size of this ginormous award undoubtedly will capture the imagination of many and almost certainly will encourage others to come forward and make whistleblower reports to the SEC.
The incentives for whistleblowers to come forward are obvious, and it does seem from the SEC’s statements made in connection with this and other awards that the whistleblowers reports have allowed the agency to bring enforcement actions or have greatly strengthened actions the agency might otherwise have brought, so the program is aiding the agency as it seeks to fulfill its mission.
But has the existence of the program increased the amount of enforcement activity? As highly incentivized whistleblowers are coming forward, is the agency a stronger enforcement agency as a result? Is the presence of the whistleblower mechanism not only aiding the detection of fraud, but also deterring fraud because of the increased possibility of detection? I feel like is we are going to have this massive program that results in huge jackpots for certainly individuals, we really ought to be asking these questions – not just whether awards like this are justified, but whether the program itself is justified.