Each year, the U.S. Securities and Exchange Commission (SEC) Whistleblower Office releases an Annual Report to Congress. Their report for the 2022 Fiscal Year details a record year for the SEC Whistleblower Program – the agency received the most whistleblower tips ever in a fiscal year. In addition to the record tips received, the SEC also paid out the second highest total ever in whistleblower awards.
During the 2022 Fiscal Year, which ran from October 1, 2021 through September 30, 2022, the SEC received a record 12,300 whistleblower tips. According to the report, “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%).”
The report also notes that “the Whistleblower Program has become fundamentally international in character, with tips received from all over the world.” Whistleblowers do not need to be U.S. citizens or located within the U.S. to qualify for awards under the SEC Whistleblower Program. In the 2022 Fiscal Year, the SEC received the highest number of tips from Canada, the United Kingdom, Germany, China, Mexico, and Brazil.
“The significant increase in the number of whistleblower tips and awards since the program’s inception shows that the program, with its enhanced confidentiality protections, is effectively incentivizing whistleblowers to make the often difficult decision to come forward with information about potential securities-law violations,” said Creola Kelly, Chief of the Office of the Whistleblower. “Regardless of whether a whistleblower is a corporate insider, a main street investor, or an unrepresented claimant, the Commission vigorously safeguards their identity while rewarding eligible individuals who identify bad actors in our markets.”
“The SEC’s whistleblower program continues to be a model of success,” said whistleblower attorney Stephen M. Kohn of Kohn, Kohn & Colapinto. “Investors and taxpayers are the biggest winners. Fraudsters are the biggest losers. Congratulations to the hard working staff at the Whistleblower Office.”
In the 2022 Fiscal Year, the SEC issued 103 whistleblower awards totaling $229 million. Through the SEC Whistleblower Program, qualified whistleblowers are entitled to awards of 10-30% of the sanctions collected in the enforcement action connected to their disclosure.
The largest whistleblower award issued in the 2022 Fiscal Year was a $40 million award issued in October 2021 to two whistleblowers who reported critical information to the SEC. The other top-five awards issued in the 2022 Fiscal Year were for $37 million, $17 million, $16 million, and $15 million.
A 2020 rule change to the SEC Whistleblower Program established a presumption of a maximum 30% award in cases where the maximum award would not exceed $5 million and there were no negative factors present. According to the report, the SEC ordered a maximum aggregate award pursuant to the presumption for more than 90% of the awards issued in FY 2022.”
During the 2022 Fiscal Year, the SEC passed two additional rule changes to its whistleblower program. The changes, which were widely supported by whistleblower advocates, concerned the payment of related action awards and the SEC’s ability to use the dollar amount of an award in determining the award percentage to grant a whistleblower. According to the report, “[t]hese amendments help ensure that whistleblowers are both incentivized and appropriately rewarded for their efforts in reporting potential violations of the law to the Commission.”
The report also details a number of enforcement actions taken by the SEC during the 2022 Fiscal Year against entities that violated the Dodd-Frank Act’s anti-retaliation provisions. In one action, the SEC charged the Brink’s Company over language in confidentiality and nondisclosure agreements which restricted whistleblowing. In another case, the SEC charged David Hansen, co-founder and former Chief Information Officer of the technology company NS8, Inc., for impeding an individual from communicating with the SEC about potential securities violations.
The 2022 Fiscal Year“continued to build on the record-breaking success of FY 2021 for the U.S. Securities and Exchange Commission’s Whistleblower Program,” the report states. Overall, since the whistleblower program was established in 2010, “[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,” according to the report.
Further Reading:
SEC Whistleblower Office Announces Results for FY 2022