Compliance officers, in house counsel, management and board members of public companies are beginning to recognize the realities of external whistleblower incentive programs. On March 8, 2016, the SEC announced the payment of almost $2-million in further whistleblowing awards to three individuals. The largest award, of about $1.8-million, went to one of the whistleblowers who voluntarily provided the SEC with the original information that prompted the investigation, and who continued to provide the regulator with valuable information during the course of the investigation. The other two whistleblowers will each receive around $65,000 for providing the SEC with information after the investigation began.

These awards are reflective of earlier statements made by the SEC, which we have previously written about, emphasizing the financial benefits to whistleblowers who come forward earlier. In providing greater financial rewards for those who report securities violations sooner, the SEC aims to prevent continuing misconduct and reduce potential harm to investors.

Since 2011, when the SEC’s Whistleblower Program was launched as part of the Dodd-Frank Act in an effort to better regulate the financial industry, the regulator has awarded over $57-million in awards to 26 whistleblowers. As previously discussed, and as reported by the SEC in its 2015 Annual Report on the Dodd-Frank Whistleblower Program to Congress, the regulator saw record amounts of tips received from and awards paid out to whistleblowers in the fiscal year 2015. During this period, almost 4,000 whistleblowing tips were received, and a record $37-million in awards were paid out to eight whistleblowers.

Some of the SEC’s larger whistleblower awards, including a payout of over $30-million to a single overseas whistleblower in fiscal 2015, have raised eyebrows. Nonetheless, in the SEC’s March 8, 2016 press release announcing these latest whistleblower awards, Sean X. McKessy, Chief of the SEC’s Office of the Whistleblower, credited the increase in tips to the money paid out in awards and a greater public awareness of the program: “We’re seeing a significant uptick in whistleblower tips over prior years, and we believe that’s attributable to increased public awareness of our program and the tens of millions of dollars we’ve paid to whistleblowers for information that helped us bring successful enforcement actions”.

The press release also highlighted that the whistleblower awards are made from an investor protection fund set up by the SEC that is financed entirely through monetary sanctions collected from securities law violators – with none of the award monies paid to whistleblowers coming from funds that were taken or withheld from harmed investors.

The SEC’s experience with whistleblowing initiatives should provide some helpful insight to Canada’s largest securities regulator as it moves forward with implementing its own whistleblowing program. As we have previously written, the Ontario Securities Commission unveiled its current proposal for a whistleblower program last October, seeking to encourage insiders to report securities law violations. The OSC’s current proposal would cap awards at $5-million, thus avoiding some of the more remarkably large payouts by the SEC, which has no cap on amounts awarded.

The OSC’s current proposal was open for public comment from October 28, 2015. In Osler’s comment letter, we set out our view that given the significant differences between the regulation of securities in Canada and the United States, the whistleblower program that the OSC ultimately adopts should differ from the SEC program by not tying awards to the imposition and size of monetary sanctions. The OSC has stated its aim to have the whistleblower program in place this year.