The SEC’s Whistleblower Mega Millions Jackpot

In November of 2020, the SEC’s Office of the Whistleblower (OWB) released its annual report for the fiscal year ending September 30.  This marks the 10-year anniversary since the whistleblower program was created as part of the Dodd-Frank bill.  Section 21F of the law, entitled “Securities Whistleblower Incentives and Protection,” established and award system where informants who make substantial contributions to successful enforcement actions are eligible to receive between 10% and 30% of the assessed penalties.  It also requires protections against retaliation, which includes maintaining the whistleblowers’ anonymity.

The OWB had a banner year in 2020, awarding a total of $175 million to 39 individuals.  The awards ranged from a high of $50 million to a low of $30,000.  The $50 million awarded in June 2020 tied a previous record set in 2018 but has already been dwarfed by an award in October 2020 (FY2021) of $114 million.  All final orders may be viewed at the SEC’s OWB website.

Since the program’s inception, whistleblowers have contributed to cases that yielded $2.7 billion in sanctions.  The first award was made in 2012 and since then the OWB has awarded $526 million to 106 individuals through FY2020.  The awards are paid from a separate Investor Protection Fund which does not reduce the restitution paid to those harmed by the perpetrators.

During the reporting period, the SEC received over 6,900 tips, a 31% increase from 2018.  The most frequent allegations included Corporate Disclosures and Financials, Offering Fraud, Manipulation, and Insider Trading.  California, Pennsylvania, New York, Florida, and Texas led the states with the most whistleblower tips.  Internationally, Canada, United Kingdom, China, and Colombia generated the most tips.

Of the awards granted, 71% provided the initial information to open an investigation, while the remaining 29% contributed to ongoing investigations that were already underway.  Current and former company insiders made up 68% of the recipients.  Of that group, some 84% first tried to raise the allegation issues within their companies before taking them up with the SEC.  One can’t help but wonder if penalties imposed might have been mitigated or avoided all together if more managers and compliance personnel were properly trained and certified with a credential like the Certified Anti-Money Laundering Specialist (CAMS).