On November 15, 2018, the U.S. Securities and Exchange Commission (“SEC”) published its statutorily mandated fiscal year report to Congress covering the agency’s whistleblower program.

The report, which covers the period from October 1, 2017 through September 30, 2018, was prepared by the SEC’s Office of the Whistleblower (“OWB”) to summarize its whistleblower bounty program, report on the program’s recent growth, and highlight key amendments to the SEC’s Dodd-Frank regulations.

Whistleblower Bounty Program

Through the whistleblower bounty program, the SEC offers a financial reward to individuals who report original, relevant information that leads to a successful enforcement action. The SEC’s report states that 69% of bounty recipients to date are current or former corporate insiders. Of these insiders, roughly 83% initially raised their concerns to their employer through internal reporting mechanisms, or perceived that their relevant compliance personnel knew of the violation, before contacting the SEC. Bounty recipients’ tips have contributed to enforcement actions related to alleged false or misleading statements in offering memoranda or marketing materials, false pricing information, accounting violations, internal controls violations, and FCPA violations, among other conduct. For FY 2018, the SEC reports that the most common activities reported by whistleblowers related to offering fraud (20%), corporate disclosures and financials (19%), and market manipulation (12%).

The statistics provided in the SEC’s report suggest that the whistleblower program expanded in FY 2018. During that period, the SEC awarded more money to whistleblowers than in all of the program’s prior years combined. In FY 2018, more than $168 million were distributed across 13 individuals whose initial tips and subsequent cooperation aided in the execution of successful enforcement actions. The SEC’s March 2018 award of $83 million included an almost $50 million joint award to two individuals, the SEC’s largest single award ever.

OWB received a total of 5,200 whistleblower tips in FY 2018, more than in any other previous year. This represents an almost 20% increase from FY 2017 and close to a 76% increase since the SEC started tracking statistics for this whistleblower bounty initiative in 2012.

Proposed Rule Amendments

The SEC attributes some of the recent uptick in whistleblowing to the Supreme Court’s ruling in Digital Realty Tr., Inc. v. Somers, 138 S. Ct. 767 (2018). In that decision, the court held that Dodd-Frank’s anti-retaliation protections only cover individuals who have reported information to the SEC (as opposed to making an internal complaint to their employer). In response to Digital Realty, the SEC revised its previously expansive definition of the term “whistleblower” to comply with the Supreme Court’s decision.

The SEC has also proposed other amendments to its regulations aimed at barring whistleblowers who repeatedly make frivolous bounty claims and affording OWB additional discretion in making bounty determinations. For example, one such proposed amendment would require an “enhanced review” of awards resulting from enforcement actions that yield penalties in excess of $100 million whereby the gross amount of the bounty award would be a factor considered by the SEC. With the public comment period for these rule modifications having ended on September 18, 2018, the SEC is now reviewing the comments before the rules themselves are finalized. The full text of these proposed amendments can be found here.