SEC Whistleblower Program

Overview

Under the SEC Whistleblower Program, the SEC will issue awards to whistleblowers who provide original information that leads to enforcement actions with total monetary sanctions (penalties, disgorgement, and interest) in excess of $1 million. In exchange for the valuable information, a whistleblower may receive an award of between 10% and 30% of the total monetary sanctions collected.

In determining an award percentage, the SEC considers the particular facts and circumstances of each case. For example, positive factors that may increase an award percentage include the significance of the information, the level of assistance provided by the whistleblower and the whistleblower’s attorney, and the law enforcement interests at stake. On the other hand, negative factors that may decrease an award percentage include unreasonable delay in reporting the violation to the SEC and the culpability or involvement of the whistleblower in the violation.

Under the SEC Whistleblower Reward Program, whistleblowers can submit tips anonymously to the SEC through an attorney and be eligible for an award for exposing any material violation of the federal securities laws.

The SEC Whistleblower Program continued its remarkable run of success in FY 2020. According to the SEC Whistleblower Office’s 2020 Annual Report to Congress, the office received more than 6,900 tips in the fiscal year. This is the highest number of tips the office has received in one year. Most whistleblower tips related to corporate disclosures and financials (25%), offering fraud (16%) and market manipulation (14%). Other notable areas of tips included insider trading, trading and pricing schemes, foreign bribery and other FCPA violations, unregistered securities offerings and fraud in connection with initial coin offerings (ICOs) and cryptocurrencies. Since 2011, the SEC Whistleblower Office has received more than 40,200 tips that have enabled the SEC to recover more than $3.5 billion in monetary sanctions from wrongdoers.

Consistent with prior years, the states that yielded the highest number of tips in FY 2020 were California, New York, Florida, Texas, and Pennsylvania. Other states that reported a high number of tips were Arizona, Georgia, Massachusetts, Michigan, North Carolina, Ohio, New Jersey, Virginia and Washington. The SEC Whistleblower Office also received tips from 78 foreign countries in FY 2020. The highest number of tips were from whistleblowers in Canada, the United Kingdom and the People’s Republic of China.

Whistleblowers need not be U.S. citizens to be eligible for SEC whistleblower awards. According to the 2017 Corruption Perceptions Index, a majority of countries are making little or no progress in ending corruption. This finding is consistent with PwC’s 2018 fraud survey, which reported the highest fraud levels in organizations in the past 20 years, and the ACFE’s 2021 fraud survey, which reported that 51% of organizations have uncovered more fraud since the pandemic and 71% of anti-fraud professionals expect the level of fraud to increase over the next year. As the SEC continues to promote worldwide public awareness of the SEC Whistleblower Program, we expect to see an increase in whistleblower tips and awards in the coming years.

SEC Whistleblower Program A Success

The report also indicates that the SEC Whistleblower Program is gaining momentum. In particular, the SEC Office of the Whistleblower, which first opened its doors in August 2011, has issued a majority of the whistleblower awards in the past several years:

In FY 2015, the SEC issued $37 million in awards to whistleblowers.
In FY 2016, the SEC issued $57 million in awards to whistleblowers.
In FY 2017, the SEC issued $50 million in awards to whistleblowers.
In FY 2018, the SEC issued $168 million in awards to whistleblowers.
In FY 2019, the SEC issued $60 million in awards to whistleblowers.
In FY 2020, the SEC issued $175 million in awards to whistleblowers.

Notably, FY 2021 is shaping up to be the best year in the SEC Whistleblower Program’s history. On October 22, 2020, the SEC issued the largest whistleblower award in the program’s history of $114 million. In addition, according to the SEC’s 2020 Agency Report, the SEC recognized a $255 million contingent liability for potential whistleblower awards to be paid in FY 2021.

SEC Office of the Whistleblower

In 2011, the SEC Office of the Whistleblower was created pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to run the SEC Whistleblower Reward Program. The program offers monetary incentives to individuals who report information about violations of the federal securities laws to the SEC. In its short history, the SEC Whistleblower Reward Program has been extraordinarily successful in enabling the SEC root out securities fraud and protect investors. To date, the SEC Office of the Whistleblower has issued more than $500 million in awards to whistleblowers.

SEC Whistleblower Rules

Under the rules of the program, the SEC Office of the Whistleblower is required to issue awards to eligible whistleblowers who provide original information that leads to successful enforcement actions with total monetary sanctions in excess of $1 million. In exchange for the specific and credible tips, whistleblowers will receive an award of between 10% and 30% of the total monetary sanctions collected. The SEC considers positive and negative factors when determining an award percentage.

The program allows individuals to submit information anonymously to the SEC Office of the Whistleblower if represented by an attorney. Whistleblowers are also afforded substantial protection against retaliation.

Regardless of citizenship, under the SEC Whistleblower Program, whistleblowers are eligible for monetary awards when they provide original information to the SEC about violations of federal securities laws.

Since the inception of the whistleblower program, tips have come from whistleblowers in 119 countries outside of the United States. In 2018 alone, the SEC received tips from whistleblowers in 72 foreign countries. The SEC Whistleblower Office received the highest number of tips from whistleblowers in the: United Kingdom, Canada, and Australia.

To date, the SEC Whistleblower Office has issued approximately $1 billion in awards to whistleblowers. The [/https://www.zuckermanlaw.com/sp_faq/largest-sec-whistleblower-awards/ largest SEC whistleblower awards to date] are $50 million, $39 million, and $37 million. For more information about the SEC Whistleblower Program, see the eBook Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award.

Criteria for Determining the Amount of a Whistleblower Award

Many factors affect the amount of a whistleblower award. The SEC may increase the amount of an award based on the following factors:

The significance of the tip to the success of any proceeding brought against wrongdoers. A tip’s significance depends on, for example:
1. the nature of the reported information, including whether the information’s reliability and completeness allowed the SEC to conserve resources; and
2. the degree to which the information supported one or more successful claims brought by the SEC or related actions brought by other regulatory or law-enforcement authorities.
The extent of the assistance that you and your legal representative provided in the SEC action or related action. Considerations include:
1. whether you provided ongoing, extensive, and timely cooperation and assistance (including when the whistleblower or their attorney provides industry-specific knowledge and expertise);
2. the timeliness of your initial report to the SEC or to your employer;
3. the resources conserved because of your assistance;
4. whether you appropriately encouraged or authorized others, who might otherwise not have participated in the investigation or related action, to assist SEC staff;
5. your efforts to remediate the harm caused by the violations; and
6. any unique hardships you experienced as a result of blowing the whistle.
The SEC’s law-enforcement interest in deterring the specific violation. Consider factors such as:
1. how much an award enhances the SEC’s ability to enforce the federal securities laws and protect investors;
2. the degree to which an award encourages the submission of high-quality information;
3. whether the specific violation is an SEC priority; and
4. the dangers of the specific violation to investors.
Whether, and the extent to which, you participated in your company’s internal compliance and reporting systems. Think about:
1. whether you reported internally before, or at the same time as, you reported to the SEC; and
2. whether you assisted any internal investigation concerning the violation.

Conversely, the SEC may reduce the amount of an award based on these considerations:

If you participated in, or were culpable for, the securities-law violation(s) you reported. Consider the following:
1. your role in the violation;
2. your education, training, experience, and position of responsibility at the time the violation occurred;
3. whether you acted knowingly and intentionally;
4. whether you financially benefitted from the violation;
5. whether you committed a violation in the past;
6. the egregiousness of the underlying violation; and
7. whether you knowingly interfered with the SEC’s investigation of the violation.
If you unreasonably delayed reporting the violation(s) to the SEC. This determination is based on:
1. whether you failed to take reasonable steps to report or prevent the violation from occurring or continuing;
2. whether you were aware of the violation but reported to the SEC only after learning of an investigation into the misconduct; and
3. whether there was a legitimate reason for you to delay reporting the violation.
If you interfered with your company’s internal compliance and reporting systems. Consider whether you knowingly:
1. interfered with your company’s reporting systems to prevent or delay detection of the violation; or
2. made materially false statements, or provided false documents, to hinder your company’s ability to detect, investigate, or remediate the violation