The SEC’s Office of the Whistleblower received a record 6,911 whistleblower tips during FY 2020, which ended September 30, 2020. The nearly 7,000 reports represent a nearly 33% increase over the number of tips received during the prior fiscal year, according to the Office’s recently released annual report. The Office also made awards representing a record high annual dollar value and to a record annual number of individual award recipients during the fiscal year. A copy of the November 16, 2020 report can be found here.
Prior to FY 2020, the highest annual number of whistleblower tips the agency received was during FY 2018, when the agency received 5,282. The 6,911 whistleblower tips the agency received during FY 2020 represent a 31% increase over the prior record annual number of whistleblower tips. The report notes that “the third quarter of FY 2020 (April-June) resulted in a particularly high number of whistleblower tips” – which could be interpreted to suggest that the coronavirus outbreak contributed to the increased numbers of whistleblower reports during the fiscal year.
Since the whistleblower program’s beginnings in August 2011, the Commission has received a total of over 40,200 whistleblower tips. Since FY 2012, the first full fiscal year following the program’s inception, the annual number of whistleblower tips has increased approximately 130 percent.
In FY 2020, the Commission made whistleblower awards totaling about $175 million to 39 individuals, “both the highest dollar amount and the highest annual number of individuals awarded in a given fiscal year.” The number of individuals awarded was three times higher than the next highest fiscal years, FY 2016 and FY 2018, when 13 individuals were awarded. The FY 2020 whistleblower awards included a June 2020 $50 million award to one whistleblower, which was at the time the highest award to a single individual. (This record high has since been exceeded by the October 22, 2020 award of $114 million to a single individual; this new record award will be counted in the FY 2021 fiscal year.) The Commission’s FY 2020 awards included five separate awards of $10 million or greater.
During the life of the whistleblower program, the Commission has awarded a total of approximately $562 million to 106 individuals in connection with 87 actions. The FY 2020 awards represent 31% of the total dollars the Commission has awarded during the history of the program and 37% of the individual award recipients. Other than the new record award made during FY 2021 noted above, three of the top 10 SEC whistleblower award by dollar amount were made during FY 2020.
In a section of the report entitled “Profiles of Award Recipients,” the report describes some of the common characteristics of the successful whistleblowers and of their tips. The report notes that the successful whistleblowers provide “specific” information – that is, the whistleblowers identified specific individuals involved in the misconduct, provided specific documents that substantiated their allegations, or identified specific financial transactions that evidenced fraud. The misconduct reported “is often relatively current or ongoing at the time it was reported.” Of the whistleblowers who have received the award, about 71% provided original information that cause the staff to open an investigation or examination, and 29% received awards because their original information significantly contributed to an already-existing investigation or examination.
The whistleblower tips submitted during FY 2020 covered a wide variety of types of alleged misconduct. The most common complaint categories reported were Corporate Disclosures and Financials (25% of all whistleblower tips), Offering Fraud (16%), and Manipulation (14%). Interestingly, there were relatively fewer report involving Insider Trading (5.3%) and Foreign Corrupt Practices Act (3%).
During FY 2020, the agency received whistleblower reports from whistleblowers in all 50 states and 78 foreign countries. The states with the highest number of whistleblower reports were California (731), Pennsylvania (643), New York (320), and Florida (277). About 11 percent of the whistleblower reports during FY 2020 were submitted from outside the U.S. The countries with the highest number of whistleblower report were Canada (91), United Kingdom (84), China (67), Colombia (48), and India (43). Over the life of the whistleblower program, the agency has received whistleblower reports from more than 130 countries outside of the U.S.
According to the report, the Office of the Whistleblower also processed more whistleblower claims during FY 2020 than any other year and issued more final orders (including both award and denial orders) than in any other year. The report also notes that “it is anticipated that the rule amendments adopted by the Commission [during FY 2020] will provide additional efficiencies in claims processing for years to come.”
As for whether or not the whistleblower program is effective in helping to fight fraud and protect investors and markets, the report notes that over the life of the program information from whistleblowers has “resulted in orders for more than $2.7 billion in total monetary sanctions, including more than $1.5 billion in disgorgement of ill-gotten gains and interest, of which more than $850 million has been, or is scheduled to be, returned to harmed investors.”
The latest report is full of impressive numbers and interesting statistics. It is hard to argue that the whistleblower program has become a very important part of the Commission’s enforcement machinery. The recent very large awards seem likely to encourage further whistleblowers to come forward; indeed, the record number of whistleblower tips during FY 2020 suggests that whistleblowers are in fact highly motivated to submit tips to the agency.
Amidst all the truly impressive figures, there is one further item that seems important to me and is the abysmally low number of awards compared to the humongous number of reports.
According to the report, there have been over 40,200 whistleblower reports over the life of the program, but only 106 individuals have received awards. In other words, only about 0.2% of reports have resulted in awards. To be sure, the payouts can be huge. But the chance of any given whistleblower getting an award is quite small. Given the record number of tips during the past fiscal year, whistleblowers do not seem discouraged by these low odds. However, whatever else might motivate a whistleblower to come forward, anyone contemplating making that move would have to be an optimist.