In what is, according to the SEC itself, the second-largest whistleblower award in the history of the agency’s whistleblower program, the SEC has awarded two joint whistleblowers a bounty of over $50 million. The agency’s order making the award is heavily redacted, in order to protect the whistleblowers’ identities, so it is hard to tell very much about the circumstances surrounding the award. But the award is the latest in what has been a recent flurry of very large whistleblower awards by the agency. The SEC’s April 15, 2021 press release announcing the award can be found here. The April 15, 2021 award order can be found here.
In the April 15 press release in which the agency announced the over $50 million award to joint whistleblowers, the agency noted that the whistleblowers “alerted SEC staff to violations that involved complex transactions” that “would have been difficult to detect without their information.” The press release adds that the whistleblowers provided “exemplary assistance” by “meeting with staff numerous times and providing voluminous detailed documents.” The information the individuals provided “resulted in the return of tens of millions of dollars to harmed investors.”
The exact amount of the award is not disclosed either in the press release or in the order itself. The award is based on a percentage of the amounts the SEC recovered from the wrongdoers, but the percentage awarded itself is redacted from the award order. Under the provisions of the Dodd-Frank Act, which created the whistleblower program, whistleblower award can range from 10 percent to 30 percent of the money collected, if the monetary recovery exceeds $1 million.
A third claimant had also sought an award in connection with the same matter; however, the agency denied the third claimant’s application. In its order, the agency said that “because Enforcement staff opened the Covered Action investigation based on the information provided by Claimant 1 and Claimant 2, and not Claimant 3,” adding that “Claimant 3 provided no information that contributed to the success of the Covered Action.”
The agency’s press release notes with respect to this award that the agency has now awarded “over a quarter of a billion dollars in the first seven months of this fiscal year alone.” (The current fiscal year runs from October 1, 2020 to September 30, 2021.) This large current fiscal year aggregate award total includes the October 2020 largest-ever whistleblower award of $114 million (discussed here).
According to the agency’s April 15 press release, the agency has now awarded approximately $812 million to 151 individuals since the first whistleblower award in 2012. Both the size of awards and the frequency of larger awards appears to be increasing — the ten largest awards in the history of the whistleblower program are detailed on the agency’s website (here); of the ten, five have been made just in the last twelve months. The number of sizeable awards during the current fiscal year follows the preceding fiscal year in which the agency made the highest annual number of awards and highest annual total dollar value of awards. Clearly, the whistleblower program seems to be gaining size and momentum.
The increasing frequency of larger whistleblower awards undoubtedly will help fuel interest of prospective future whistleblowers, increasing the likelihood that individuals aware of possible wrongdoing will come forward. The heightened motivation of prospective whistleblowers not only increases the potential for future enforcement activity, but it increases the possibility for other types of claims as well. As I noted in a post earlier this year, in at least one instance (involving ExxonMobil) a whistleblower report to the SEC led not only to an SEC investigation but also to a separate securities class action lawsuit.
In thinking about what all of this might mean, it is worthwhile to consider a point the agency made in its April 15 press release. As noted above, the agency said of the violations that these two whistleblowers reported “would have been difficult to detect without their information.” To the extent the program is empowering the agency to reach misconduct that otherwise would go undetected, the program is providing a powerful boost to the integrity of our financial system.