On November 15, 2016, the Securities and Exchange Commission (“SEC”) released its annual report to Congress on the Dodd-Frank Whistleblower Program (the “Program”). As noted in prior reports, the past year has been historic for the Program, both in terms of the number of whistleblower tips and the dollar value of whistleblower awards. Since the Program was created in 2011, the SEC has awarded more than $111 million to 34 whistleblowers.
- In Fiscal Year 2016, the Office of the Whistleblower received more than 4,200 whistleblower tips, continuing its streak of receiving more complaints each year since the Program began in 2011 and representing more than a 40% increase in the number of tips it received in its first year. The Program has received more than 18,000 tips in its five-year history.
- In the past year, the SEC issued more than $57 million in awards to whistleblowers, an amount greater than the prior four years combined.
- The report emphasized that the ten highest awards have each totaled more than $1 million, and five of the top ten awards were issued in FY 2016.
- Since the inception of the Program, the SEC enforcement actions that resulted in whistleblower awards produced more than $584 million in financial sanctions, including the disgorgement of more than $346 million of ill-gotten gains and interest.
- This past year, the SEC brought suit against multiple companies for allegedly interfering with individuals’ ability to report wrongdoing to the SEC through the use of severance agreements requiring outgoing employees to waive their rights to monetary awards from the Program.
- The Report emphasized that confidentiality continues to be a key feature of the Program. While the SEC does not release information identifying any whistleblower, either in individual award orders or in its annual reports, the report did include the following profile information:
- Nearly 65 percent of whistleblowers receiving awards in FY 2016 were insiders of the entity about which they reported. This represents a substantial increase over FY 2015, in which the SEC estimated that only half of whistleblowers receiving awards were insiders. The remaining whistleblowers receiving awards were investors, professionals working in the same or similar industries, or individuals with personal relationships with the defendants.
- Approximately half of whistleblowers receiving awards in FY 2016 were represented by counsel at the time they initially submitted information to the SEC.
- In FY 2016, the SEC received tips from whistleblowers in nearly 70 countries across six continents. The largest number of tips from whistleblowers outside the United States came from Canada, the United Kingdom, and Australia.
Looking forward, we expect that whistleblowers will continue to submit complaints under the Program at an ever-increasing rate. Under the incoming administration, the SEC may shift its focus away from its current “broken windows” theory of deterrence, which targets smaller issues in order to send a message that no bad actions will be tolerated, but we anticipate that it will continue to publicly tout large monetary awards to encourage whistleblowers to provide evidence of larger-scale issues. To that end, Chief Norberg stated in the announcement of the Program’s most recent announcement on December 5, 2016, that “whistleblowers do a tremendous service to the investing public and we will continue to reward those who come forward with valuable tips that help us bring successful cases against those who violate the securities laws.” As the Program continues to announce more awards of ever increasing value, it continues to be important for companies (1) to ensure that they have vigorous compliance programs in place to prevent and detect potential issues and (2) to respond immediately and effectively to internally reported information.
For more information about the SEC Whistleblower Program, click here, or see our Whistleblower Litigation Mitigation Checklist and our previous alerts, including SEC Announces $20 Million Whistleblower Award and SEC Announces Penalties Against Companies Requiring Employees to Waive Whistleblower Protections to Receive Severance.