All eyes have recently been focused on the U.S. Department of Justice’s announcement of its new corporate whistleblower awards program. The DOJ’s program potentially could have a significant impact on future corporate crime prosecutions, but meanwhile the Securities Exchange Commission’s whistleblower program has been up and running for years and indeed just passed the thirteenth anniversary of its launch date. The SEC’s recent announcement of two substantial awards in connection with a single matter highlights the program’s continuing significance, as well as the sheer magnitude of the awards that can be available under the program.

On August 23, 2024, the SEC announced the award of more than $98 million to two whistleblowers “whose information and assistance led to an SEC enforcement action and an action brought by another agency.” As discussed below, the amount of the two awards taken collectively, while impressive, is not the largest of awards given under the SEC’s whistleblower program. The SEC’s August 23, 2024, press release about the new awards can be found here. The SEC’s August 23, 2024, Award Order can be found here.

According to the SEC’s heavily redacted award order, the first of the two whistleblower’s “voluntarily provided original information that caused the Commission” and to another unnamed agency “to open investigations leading to the successful enforcement” of the federal securities laws, and after making the initial report, provided what the press release called “critical additional information and additional assistance.”  The first whistleblower was awarded more than $82 million.

The second whistleblower, whose information was provided later, also, according to the award, had contributed original information that “significantly contributed to the success” of the referenced enforcement action. The press release clarified that the second whistleblower contributed to “one aspect of the actions.” The second whistleblower was awarded more than $16 million.

Under the SEC’s whistleblower program, whistleblower awards can range from 10% to 30% of the money collected of the SEC enforcement action based on the whistleblower report results in fines and penalties exceeding $1 million. In its press release about the most recent awards, the SEC emphasized that the payments to whistleblowers are made from a Congressional established fund, which, according to the agency “is financed entirely through monetary sanctions paid to the SEC by securities law violators.”

In its award order, the SEC noted that the second of the two whistleblowers involved in this matter had filed a motion for reconsideration seeking a higher award percentage. The second whistleblower had argued that the information provided by the first whistleblower was “less than remarkable” and that not all of the information provided by the first whistleblower had proved to be factually correct. The SEC found that the award percentages appropriately recognized each of the two whistleblower’s respective contributions. The agency also noted that the first whistleblower’s information and assistance were “critical to the investigation and had a significantly greater impact on the success of the enforcement actions.”

Discussion

The two awards, taken collectively, while substantial, do not represent the largest of awards in the history of the SEC’s whistleblower program. The largest award in the program’s history is the May 2023 award of nearly $279 million to a single informant. According to information on the SEC Office of the Whistleblower’s webpage (here), the $98 million in total awarded to these two whistleblowers is the fifth largest collective amount awarded in connection with a single enforcement action, and the $82 million awarded to the first whistleblower here is the fourth largest ever individual award.

While the SEC whistleblower program has resulted in a number of very significant whistleblower awards as a result of significant enforcement actions the agency has been able to pursue based on the informants’ reports, the program has not really had one of the effects that I initially thought it would have.

That is, I had thought that as a result of the enforcement activity arising from the whistleblower reports, there would be a significant number of follow-on private securities class action lawsuits based on the information that first came to light as a result of whistleblower reports. By and large, the anticipated follow-on securities litigation hasn’t happened. While there has been at least one securities class action lawsuit filed following a whistleblower report (a January 2021 securities suit against Exxon Mobil, discussed here), there have not otherwise been, so far as I am aware, any other follow-on private securities lawsuits following enforcement actions arising from whistleblower reports.

To be sure, it may be that there have been other follow-on securities suits following whistleblower report-initiated enforcement actions. The SEC’s practice of heavily redacting its award orders (done in order to protect the anonymity of the whistleblowers) makes it difficult, if not impossible, to tell which enforcement action the awards relate to. Even allowing for the possibility that there have been other follow-on actions without an apparent connection to a whistleblower report, the SEC whistleblower program has had less of an impact on private securities litigation than I had anticipated.

As significant as many of the larger whistleblower awards have been, the SEC’s whistleblower program itself has been criticized. Among other things, the program has been criticized for the low number of awards relative to the high number of reports, as well as the substantial lag time involved with the awards the agency ultimately made. In addition, according to a August 22, 2024 Bloomberg opinion column (here, the agency has also been criticized for its poor communications with whistleblowers following their reports, contributing to mental health issues for the informants.