On November 17, 2014, the U.S. Securities and Exchange Commission’s Office of the Whistleblower released its 2014 Annual Report to Congress. According to the report, 2014 was a historic year for the SEC Whistleblower program in terms of both the number and dollar amount of whistleblower awards. The SEC issued whistleblower awards to more individuals in 2014 than in all previous years combined.
The SEC whistleblower award program was created to encourage whistleblowers to report securities violations committed by publicly traded companies. When a whistleblower tip is filed with the SEC and leads to successful enforcement action netting penalties of at least US$1 million the whistleblower who filed the tip can be awarded between 10 per cent and 30 per cent of money collected by the SEC.
The SEC’s report also revealed that, under its whistleblower award program, it had made payouts to nine people in 2013-14.
One of these whistleblower awards was a record payout of $30 million to a whistleblower living in a foreign country. The whistleblower in that case provided information of an ongoing fraud that otherwise would have been very difficult to detect. “The award is the largest made by the SEC’s whistleblower program to date and the fourth award to a whistleblower living in a foreign country, demonstrating the program’s international reach,” stated Sean McKessy, the chief of the SEC’s Office of the Whistleblower.
McKessy also stated, “We hope that awards like this one will incentivise company and industry insiders, or others who may have knowledge of possible federal securities law violations, both in the U.S. and abroad, to come forward and report their information promptly to the Commission.”
Notably, in Fiscal Year 2014, overall tips to the SEC from potential whistleblowers surged by more than 20 per cent, to 3620, on matters including disclosure, insider trading, foreign corruption and market manipulation. The SEC paid awards to more individuals in the 12 months to September 30 than it had in all previous years combined.
In addition to rewarding whistleblowers, the SEC has been actively working to identify retaliation by publicly traded companies against whistleblowers. On June 16, 2014, the SEC ordered Paradigm Capital Management to pay $2.2 million for engaging in a “series of retaliatory actions” against a whistleblower. The SEC wanted to send “a strong message to employers that retaliation against whistleblowers in any form is unacceptable,” the report stated.
As a result of the Commission’s issuance of significant whistleblower awards, enforcement of the anti-retaliation provisions, and protection of whistleblower confidentiality, the agency has continued to receive an increasing number of whistleblower tips.
In a statement released today, Stephen M. Kohn, Executive Director of the National Whistleblower Center, stated:
“Despite these advances, we remain troubled by the slow-pace of granting monetary rewards. Publicly granting large rewards is the single best tool for ensuring compliance with securities laws. Paying monetary rewards is the best way to ensure that the top management of publicly traded companies understand that there is a new ‘cop on the block.’ Those new cops are their own employees, who can now work side-by-side with SEC investigators in documenting violations of law. Granting large public rewards is the single best tool the SEC has to send this message.”
The Internal Revenue Service runs similar award program for whistleblowers who report tax fraud that exceeds $2 million in unpaid taxes, penalties, and interest.
Link: SEC’s Office of the Whistleblower 2014 Annual Report to Congress.