During the 2023 Fiscal Year, the Dodd-Frank Act whistleblower programs of the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) surpassed $2 billion in whistleblower awards, according to the whistleblower law firm Kohn, Kohn & Colapinto.
The Dodd-Frank Act, which passed in 2010, established whistleblower award programs at the two agencies to incentivize insiders with knowledge of corporate fraud and misconduct to come forward to the authorities. Through the programs, qualified whistleblowers are entitled to monetary awards of 10-30% of the funds collected by the government in the enforcement action aided by their whistleblowing.
“Passing the $2 billion threshold in whistleblower awards is a major milestone for the Dodd-Frank whistleblower programs and a testament to how they have revolutionized the enforcement of white-collar crime,” said whistleblower attorney Stephen M. Kohn of Kohn, Kohn & Colapinto. “The $2 billion in awards corresponds with several billions of dollars that whistleblowers have allowed the SEC, CFTC, and other agencies to recover for harmed investors.”
The SEC Whistleblower Program has awarded more than $1.8 billion to whistleblowers. According to the agency’s 2022 Fiscal Year report, “[e]nforcement actions brought using information from meritorious whistleblowers have resulted in orders for more than $6.3 billion in total monetary sanctions, including more than $4.0 billion in disgorgement of ill-gotten gains and interest, of which more than $1.5 billion has been, or is scheduled to be, returned to harmed investors,.”
In 2022, SEC Chair Gary Gensler noted that the whistleblower program “has greatly aided the Commission’s work to protect investors.”
The range of misconduct reported by SEC whistleblowers is widespread. In FY 2022, “the most common complaint categories reported by whistleblowers were Manipulation (21%), Offering Fraud (17%), Initial Coin Offerings and Cryptocurrencies (14%), and Corporate Disclosures and Financials (13%),” according to the agency.
The CFTC Whistleblower Program has awarded more than $350 million to whistleblowers. According to the agency, roughly 30% of all investigations stem from whistleblower tips and whistleblowers have allowed the agency to recover more than $3 billion from fraudsters.
CFTC whistleblowers have reported a wide range of types of misconduct, including increasingly crypto fraud. In the 2023 Fiscal Year, the agency received whistleblower tips on “market manipulation, spoofing, insider trading, corruption, illegal swap dealer business conduct, recordkeeping or registration violations, and fraud or manipulation related to digital assets, precious metals, and forex trading.”
“Whistleblowers play a vital role in supporting CFTC investigations related to fraud and other illegality,” CFTC Commissioner Christy Goldsmith Romero recently stated. “The CFTC could not fully protect customers and markets without whistleblowers. Whistleblowers help identify fraud and other illegality, interpret key evidence, and save considerable Commission resources and time. The faster we can stop fraud, the more we can protect customers from harm.”
In the 2023 fiscal year, both the SEC and the CFTC set new records for whistleblower tips received. The SEC received 18,000 tips according to Chair Gensler. The CFTC received 1,530.
Despite the immense success and continued growth of the whistleblower programs, there is legislative movement in Congress to further bolster the programs.
“While the SEC and CFTC have established highly effective whistleblower programs, further reforms are needed to ensure they can continue to operate at the highest level,” Kohn added. “Congress needs to prioritize bipartisan legislation currently pending which would help whistleblowers recover many more billions of dollars for taxpayers and harmed investors.”
Introduced in July by a bipartisan group of senators, the CFTC Whistleblower Fund Improvement Act of 2023 addresses a funding crisis which is undermining the CFTC Whistleblower Program. The program’s growth has led to this crisis due to a cap on the fund used to finance the program. The CFTC Whistleblower Fund Improvement Act raises this cap, which has not been changed since it was instituted in 2010.
“The bipartisan Whistleblower Fund Improvement Act will ensure that the CFTC whistleblower program will not be a victim of its own success and can continue to help root out fraud in the U.S. derivatives markets,” wrote Kohn in an article calling for the passage of the bill.
On March 15, Senators Chuck Grassley (R-IA) and Elizabeth Warren (D-MA) introduced the SEC Whistleblower Reform Act of 2023 in order to further strengthen the highly successful SEC Whistleblower Program. The bill bolsters the Dodd-Frank Act’s anti-retaliation protections and ensures that the agency processes award claims in a more timely manner.
According to Allison Herren Lee, former SEC Commissioner and currently Of Counsel at KKC, the SEC Whistleblower Reform Act of 2023 “will help ensure that the SEC Whistleblower Program remains an indispensable tool in the Commission’s efforts to police wrongdoing and protect investors.”
National Whistleblower Center (NWC) is calling for the immediate passage of both reform bills. NWC has set up Action Alerts calling on whistleblower supports to join them in urging Congress to pass the bills.
Join NWC in Taking Action:
Save the CFTC Whistleblower Program
Protect Internal Corporate Whistleblowers
Further Reading:
SEC, CFTC Pass $2 Billion Award Milestone but Reforms are Still Needed