The US Securities and Exchange Commission whistleblower program exploded this past year, setting astonishing records:
- The largest SEC whistleblower reward ever made ($114 million).
- The most SEC whistleblower reports filed in one year (12,200).
- More SEC whistleblowers received rewards (108) than in all prior years combined.
If there were any doubts about the effectiveness of the SEC whistleblower programs and the value of whistleblowers, a look at the numbers in the SEC Office of the Whistleblower’s fiscal year 2021 annual report should erase that.
As of Sept. 30, when fiscal year 2021 ended, the SEC had ordered nearly $5 billion in monetary sanctions in enforcement actions due to whistleblower information and assistance since the whistleblower program’s inception. More than $1.3 billion of that has been or is scheduled to be returned to harmed investors.
Whistleblowers are providing valuable information to the SEC. About a third of SEC enforcement actions now are initiated due to whistleblowers – and that percentage is expected to increase over time. In addition, more than half of those who received rewards in FY 2021 provided information about securities law violations that the SEC was unaware of; the other half provided information and assistance that contributed significantly to an ongoing investigation or examination.
The SEC whistleblower program hit a major milestone this past year, when the total amount of whistleblower rewards since the program’s inception exceeded $1 billion. Over half of that – $564 million – was awarded during FY 2021, which includes the two largest SEC whistleblower awards so far:
- $114 million, which went to one individual in October 2020 based on information and assistance that resulted in an SEC enforcement action and a related action by another agency.
- $110 million, which was awarded to a whistleblower in September who provided substantial independent analysis of publicly available information from multiple sources that was the basis for a major enforcement action.
Headline-grabbing whistleblower rewards like those drew record numbers of whistleblowers to the SEC last year. The number of whistleblower tips jumped nearly 76% over the previous year to 12,200.
The most common whistleblower reports in FY 2021 concerned allegations of manipulation (25%), corporate disclosure and financial accounting failures (16%), offering frauds (16%), problematic trading and pricing practices (6%) and initial coin offering and cryptocurrency frauds (6%).
The program continues to draw big numbers of international whistleblowers. More than one out of 10 SEC whistleblower reports were from individuals residing outside the United States, with the largest number coming from Canada, China, the UK, Colombia and India. International whistleblowers are being rewarded for their efforts, with about 20% of SEC awards made last year going to whistleblowers in other countries.
One area of concern for SEC whistleblowers is the backlog of whistleblower award applications. Fortunately, the SEC has picked up speed this past year, helped by new rules and systems for processing awards. The number of whistleblowers who received awards nearly tripled from just 39 in FY 2020 to 108 last year.
Meanwhile, the SEC continues to aggressively pursue enforcement actions against companies that deter or chill whistleblowers from going to the SEC, a violation of whistleblower protection rules.
The SEC fined Guggenheim Securities LLC $208,912 in June for prohibiting employees from having any contact with the SEC or other regulators without prior approval from the firm’s legal or compliance department, as stated in an employee manual and reinforced in compliance training.
The SEC also charged a New York-based asset management firm and registered investment adviser, GPB Capital, with violating whistleblower protection rules by including language in termination and separation agreements that impeded individuals from coming forward to the SEC, and retaliating against a known whistleblower. The owner and CEO of GPB Capital and two others allegedly ran a $1.7 billion Ponzi-like scheme, according to the SEC which filed charges against them in February.
One of the major criticisms of the SEC whistleblower program by corporate interests is that it undercuts compliance programs. However, the statistics prove this false.
More than 75% of the whistleblowers who received awards last year raised their concerns internally first – to managers, compliance personnel or through internal reporting mechanisms – or knew that their supervisor or company compliance personnel were aware of the violations. Most whistleblowers are loyal employees; they just want their employer to follow the law.
Current work-from-home conditions may have contributed to the flood of whistleblower submissions because they weaken employees’ ties to the workplace. But corporate America need look no further than their own business practices for reasons why so many employees go to the SEC with their concerns. Whistleblowers are motivated first and foremost by companies’ unethical practices and the failure to take steps to correct them.