Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) amended the Securities Exchange Act of 1934, by creating Section 21F “Securities Whistleblower Incentives and Protection,” which is designed to grant monetary awards to individuals who provide original information that leads to successful enforcement actions by the Securities and Exchange Commission (the “SEC”). Section 924(d) of Dodd-Frank requires that the SEC’s new Office of the Whistleblower (the “Office”) make annual reports to Congress on the activities and complaints received by the Office. On November 15, 2012, the SEC released its Annual Report on the Dodd-Frank Whistleblower Program, and is available here.
The Office’s day-to-day activities include:
- communicating with whistleblowers;
- reviewing whistleblower award applications;
- assisting the Division of Enforcement with collecting whistleblower documentation and information;
- creating public awareness of the whistleblower program;
- collecting residential mortgage fraud information;
- training the SEC staff on the SEC’s implementation of Dodd-Frank;
- working with other agencies’ whistleblower programs; and
- providing guidance to the SEC staff on whistleblower policies.
In 2012, the Office received 3,001 whistleblower complaints through the SEC’s Tips, Complaints, and Referrals System (“TCR”), with 10% of complaints coming from outside of the United States. The most common topics this year were disclosure concerns and allegations of financial fraud and manipulation. Working with the SEC’s Office of Market Intelligence, the Office forwards tips that are sufficiently timely, specific and credible to the SEC’s Enforcement staff or other applicable Divisions within the SEC.
When a sufficient tip leads to sanctions over $1 million, a whistleblower can be awarded 10%- 30% of the sanctions collected by the SEC. When any SEC enforcement action reaches the $1 million threshold, the Office puts out a Notice of Covered Action, to which a person has 90 days to apply for an award under that action. During 2012, the SEC posted 143 such notices.
In 2012, the Office made its first award under the whistleblower program, with a whistleblower submitting significant information and documentation to stop a multi-million dollar fraud. The whistleblower will receive 30% of the total sanctions recovered by the SEC, which is the maximum allowed under the program. In the same matter, the SEC denied a second tipper from receiving awards, as they did not provide information that significantly contributed to the SEC’s successful enforcement action. More specific information was not provided in the report in order to protect the identity of the whistleblower.
Dodd-Frank also created the Investor Protection Fund (the “Fund”), which is designed to fund the Office’s whistleblower award program and the employee suggestion program ran by the SEC’s Office of the Inspector General. During 2012, the Fund made $757,248 earnings on investments, paid out $45,739 to whistleblowers, used $69,727 on Inspector General programs and ended with a balance of $453 million. No sanctions that were collected were put in the Fund, as the balance of the Fund exceeds the threshold in which deposits are required. A full accounting of the Fund is available on the SEC’s website.
The website of the Office contains detailed information on the whistleblower program, including how to submit a complaint and how tips are handled.