The SEC’s Office of the Whistleblower has released its annual report for fiscal year 2015, reporting that it received nearly 4,000 whistleblower tips in the year ended September 30, 2015 (up from 3,620 the prior year).
In FY 2015, the SEC received tips from all 50 states and from 61 countries. The report also provides a glimpse into the most common types of allegations that whistleblowers are making to the SEC, such as corporate disclosures and financials (17.5 percent), offering fraud (15.6 percent), and manipulation (12.3 percent).
Aside from the raw numbers disclosed in the report regarding the types of whistleblower allegations and the whistleblowers’ locations, there are four interesting – and in some cases, surprising – points from the report:
1. The Office of the Whistleblower identifies one “priority”: “Assessing confidentiality agreements for compliance with Rule 21F-17(a) will continue to be a top priority for OWB into Fiscal Year 2016.”
Exchange Act Rule 21F-17(a) provides that “[n]o person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement… with respect to such communications.” On April 1, 2015, the Commission brought is first enforcement action under the Rule against a company that allegedly used confidentiality agreements with employees to “interfere with an individual’s ability to report potential wrongdoing to the SEC.” According to the report, the Office of the Whistleblower “will continue to focus” on confidentiality, severance and other agreements and examine whether they violate the Rule.
2. FCPA allegations are up, while tips from overseas whistleblowers are down: According to the report, there were 186 FCPA allegations in 2015 (up from 159 in 2014). At the same time – perhaps counterintuitively – tips from overseas whistleblowers were down, both in absolute terms and as a percentage of tips over all (421 tips (approximately 10 percent) in 2015; 448 tips (approximately 11.5 percent) from 2014.
3. Several characteristics of successful whistleblowers (i.e., whistleblowers who have received an award from the Office) are surprising:
- Only about half of the whistleblowers who have received awards to date “caused [the SEC] to open an investigation.” The other half received an award “because their original information significantly contributed to an existing investigation.”
- Similarly, only about half of the whistleblowers who have received an award to date were current or former employees of the company they reported.
- Approximately 80 percent of those award recipients who were current or former employees reported the wrongdoing internally before reporting it to the SEC. (Taken together, these numbers suggest that approximately 60 percent of tips were not reported internally first.)
- Approximately 80 percent of award recipients did not report their information to the SEC anonymously.
4. A lot of the SEC’s tips yield nothing. According to the report, currently the Office of the Whistleblower is “tracking over 700 matters in which a whistleblower’s tip has caused [the SEC to open an investigation] or which have been forwarded to Enforcement staff for review and consideration in connection with an ongoing investigation.”
Clearly, that number represents a lot of cases and/or potential enforcement activity. There is, however, another way of looking at this number. The SEC has received approximately 8,000 tips in the last two years (and a total of 14,116 over the life of the program). In the past two years, about 7,300 tips either did not result in either an investigation or were deemed unworthy of forwarding for “review and consideration.” The high number of unacted-on tips suggests that either the Office of the Whistleblower does a very good job of triage or a lot of those tips are worthless, or both. For example, the report notes that recently two individuals submitted more than 220 claims, all of which were denied and many of which were based on “false, fictitious and fraudulent statements.”