On September 28, the U.S. Securities and Exchange Commission (SEC) announced a whistleblower award, which marked the 100th individual to receive a whistleblower award through the SEC Whistleblower Program. These 100 whistleblowers have forever changed Wall Street by demonstrating the efficacy of the SEC Whistleblower Program and proving the crucial role whistleblowers can play in fighting corporate fraud.
Due to confidentiality protections of the Dodd-Frank Act, the SEC does not disclose any information about the whistleblowers that could reveal their identity. However, original research by Whistleblower Network News into whistleblower award orders and SEC press releases reveals interesting insights into the first 100 SEC whistleblowers. The first 100 whistleblowers hailed from across the globe, occupied a range of positions in relation to the perpetrators and reported on a wide variety of securities violations. Put simply, SEC whistleblowers come in all shapes and sizes.
It should be noted that this data is based upon all the announced SEC whistleblower awards since the first award was issued in 2012. An unknown number of brave whistleblowers have provided tips to the SEC and were either ineligible for awards, or their cases are still pending.
The one consistent factor in all the whistleblower award cases is that the whistleblowers voluntarily provided the SEC with significant information. To be eligible for a whistleblower award, whistleblowers must voluntarily provide the SEC with original information that leads to a successful enforcement action in which over $1 million was collected. Additionally, at least sixty of the whistleblowers went beyond just making a whistleblower disclosure and actively assisted in the SEC’s investigation. In a press release for one such award, Jane Norberg, Chief of the SEC’s Office of the Whistleblower, said, “whistleblowers can provide a wealth of information and ongoing assistance that helps our agency bring enforcement actions quicker and more efficiently. This whistleblower not only helped us open the case, but also provided timely ongoing assistance along with critical documents and testimony that accelerated the pace of our enforcement action.”
The first 100 SEC whistleblowers highlight the global reach of the SEC Whistleblower Program. According to the SEC, at least 15 of the first 100 awarded whistleblowers were foreign nationals or residents of foreign countries, and nearly 4,000 individuals from 122 different countries filed whistleblower claims between 2011 and 2019. Additionally, SEC whistleblower tips have revealed securities violations occurring all over the world. Whistleblower disclosures regarding overseas violations are particularly important to the SEC because, as noted by Norberg, “misconduct occurring overseas can have a major impact on U.S. markets while at the same time remaining hard to detect.” The global reach of the whistleblower program is best exemplified in the award determination for a more than $30 million award granted to a foreign national in 2014. In this case, the SEC ruled that “it makes no difference whether… the claimant was a foreign national, the claimant resides overseas, the information was submitted from overseas, or the misconduct comprising the U.S. securities law violation occurred entirely overseas.”
The first 100 SEC whistleblowers likewise occupied a wide variety of occupations and had differing relations to the perpetrators of the reported fraud. A majority of the whistleblowers were either current or former insiders at the entity about which they reported. A substantial majority of these insider whistleblowers reported their concerns internally in addition to reporting to the SEC. This figure is likely to drop in upcoming years, however, as a recent Supreme Court ruling and subsequent SEC rule change stripped the SEC of its ability to protect internal whistleblowers from retaliation. At least 4 of the 100 whistleblowers actually worked in a compliance or audit position within the perpetrating company. In a press release for one such case, then Director of the SEC’s Division of Enforcement, Andrew Ceresney, said, “when investors or the market could suffer substantial financial harm, our rules permit compliance officers to receive an award for reporting misconduct to the SEC. This compliance officer reported misconduct after responsible management at the entity became aware of potentially impending harm to investors and failed to take steps to prevent it.”
Not all of the 100 whistleblowers were company insiders, however. At least four of the whistleblowers were actually harmed investors who provided the SEC with information regarding the misconduct affecting them. Additionally, at least two of the whistleblowers were outside financial analysts. In a press release, Norberg said, “detailed analysis by outsiders of companies can have a significant impact on the enforcement of the federal securities laws. Today’s award demonstrates the Commission’s commitment to awarding individuals who provide high-quality, independent analysis that leads to successful enforcement actions.” However, a group of U.S. Senators warns that recently approved guidance by the SEC “would permit the SEC to create an insurmountable hurdle for a whistleblower to establish original information based on ‘independent analysis.'” According to the SEC, other types of outsiders who have been granted whistleblower awards include “professionals working in the same or related industry” and “individuals who had a personal relationship with the wrongdoer.”
The range of securities violations that the whistleblowers reported on is likewise far-reaching. According to the SEC, these violations included “offering frauds, such as Ponzi or Ponzi-like schemes, false or misleading statements in a company’s offering memoranda or marketing materials, false pricing information, accounting violations, internal controls violations, and Foreign Corrupt Practices Act (FCPA) violations, among other types of misconduct.”
The actions of these first 100 whistleblowers have garnered the attention of the highest-ranking SEC officials. In the recent vote on rule changes to the whistleblower program, all five SEC Commissioners offered unequivocal praise to the program as a whole and to the whistleblowers specifically. For example, Commissioner Caroline A. Crenshaw stated, “my fellow Commissioners and I agree that whistleblowers are of tremendous value to the agency. They are a critical part of our enforcement program.”