SEC Surpasses $1 Billion in Awards to Whistleblowers
On September 15, 2021, the US Securities and Exchange Commission (SEC) announced that its whistleblower program, which was formed in 2011, “has now paid more than $1 billion in awards to 207 whistleblowers, including over $500 million in fiscal year 2021 alone.” This milestone was reached by the issuance of two awards identified in the September 15 announcement, one of which was a $110 million award that stands as the second-highest award in the history of the program.
As we discussed in a prior Advisory, the SEC’s fiscal year 2020 was a record-breaking year for the whistleblower program in terms of tips received and awards paid, and fiscal year 2021 (which ends on September 30, 2021) already has set new records. In another Advisory, we highlighted statements by SEC Chair Gary Gensler that signaled his intent to strengthen the whistleblower rules. And, in a third Advisory, we discussed charges brought against a broker-dealer for whistleblower violations in the firm’s compliance manual and annual training materials.
As the former Chief of the Office of the Whistleblower (OWB), I know first-hand how impactful tips from whistleblowers can be for the SEC’s Division of Enforcement. Information provided by whistleblowers to the SEC has resulted in more than $4.8 billion in financial remedies being ordered against those charged with violating the securities laws. Tips from insiders of companies are particularly fruitful. Of note, according to the SEC’s 2020 Annual Report to Congress on the Whistleblower Program, 84% of SEC whistleblower awardees reported their concerns internally, in many cases to a direct supervisor, before or at the same time they reported out to the SEC. This means that, in many instances, companies have an opportunity to identify, investigate, and correct misconduct if proper mechanisms are in place. We provided recommended best practices for encouraging and handling internal whistleblower tips in a prior Advisory.
It is clear that the SEC views whistleblower tips as an important tool for the enforcement of the securities laws. In addition to the statements made in the SEC’s announcement of the $1 billion milestone, the SEC sent out a tweet with a video of Chair Gensler in support of the whistleblower program. In the video, Chair Gensler identifies the exact amount of awards issued since the inception of the program ($1,074,010,519.76) and explains that “the tips, complaints, and referrals that whistleblowers provide are among the most powerful weapons in the law enforcement of the SEC.” Chair Gensler goes on to say that “[a] whistleblower’s knowledge of circumstances or individuals involved can help the SEC identify possible violations much easier than might otherwise be possible.” Chair Gensler ends the video by inviting would-be whistleblowers to visit the OWB website to submit tips, complaints, or referrals.
Given the importance of the whistleblower program milestone, the extremely large dollar amount of one of the awards that pushed the program over the $1 billion mark, and the call to action by the SEC Chair, companies should expect much more whistleblowing—both internal and external—to occur.
Arnold & Porter is continuing to monitor developments with respect to the SEC’s whistleblower program and will continue to issue client advisories related to whistleblowing and best practices for companies.
© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.