Vedder Thinking | Articles Whistleblower Award Signals SEC’s Growing Reliance on Tips from Company Outsiders
As republished on March 23, 2016 by The National Law Review.
The Securities and Exchange Commission (SEC) recently announced a whistleblower award of more than $700,000 to a company outsider who “provided a detailed analysis to the Commission”1 in connection with a successful SEC enforcement action against an unidentified company. While the SEC has provided whistleblower awards to external whistleblowers in the past, this recent award suggests that the SEC will likely continue to welcome and pursue tips from company outsiders.
Because the identity of the whistleblower remains confidential, the SEC’s order determining the whistleblower award provides minimal detail regarding the circumstances surrounding the whistleblower’s tip to the SEC. However, based on the SEC’s order, it is clear that the company outsider provided “analysis” to the SEC on at least two occasions, both before and after the Commission enacted its whistleblower award program.2 The analysis that the SEC received from the external whistleblower before the enactment of the whistleblower award program did not serve as the basis of the whistleblower’s monetary award.
In connection with the SEC’s public announcement of this recent whistleblower award, Andrew Ceresney, Director of the SEC’s Enforcement Division, stated that “[t]he voluntary submission of high-quality analysis by industry experts can be every bit as valuable as first-hand knowledge of wrongdoing by company insiders.”3
This recent award highlights the SEC’s continued willingness to pursue whistleblower tips that it receives from individuals who are not current or former employees of a company. Indeed, the Chief of the SEC’s Office of the Whistleblower, Sean X. McKessy, noted that this recent whistleblower award “demonstrates the Commission’s commitment to awarding those who voluntarily provide independent analysis as well as independent knowledge of securities laws violations to the agency. We welcome analytical information from those with in-depth market knowledge and experience that may provide the springboard for an investigation.”4
Since its inception in 2011, the SEC Whistleblower program has awarded more than $57 million to 26 whistleblowers.5 The SEC most recently announced the payment of almost $2 million to three whistleblowers in March 2016. In the fiscal year 2015, the SEC received 3,923 whistleblower tips, complaints or referrals, which was an increase of 303 tips, complaints or referrals (or approximately 8%) from the fiscal year 20146. The most common categories for tips, complaints or referrals reported by whistleblowers in the fiscal year 2015 were corporate disclosure and financials (17.5%), offering fraud (15.6%) and manipulation (12.3%).7 Moreover, the SEC paid more than $37 million in awards to eight whistleblowers in the fiscal year 2015.8 Whistleblower awards typically range from 10 to 30 percent of the money collected when the money sanctions at issue exceed $1 million.9
The SEC recently reported in its 2015 Annual Report to Congress on the whistleblower program that, to date, “almost half of the award recipients [have been] current or former employees of the company on which they reported information of wrongdoing.”10 Notably, the remaining whistleblower award recipients were company outsiders, or individuals who obtained information of possible misconduct by virtue of being “victims of the fraud, professionals working in a related industry, or [having] a personal relationship with the alleged wrongdoer.”11 The SEC also highlighted in its 2015 Annual Report to Congress that “[t]here is no requirement under the Whistleblower Rules that an individual must be a current or former employee to be eligible for an award.”12
The SEC’s whistleblower program continues to be a strong and powerful tool that the Division of Enforcement relies on to further its enforcement objectives.
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1 SEC Order Determining Whistleblower Award, Release No. 76921, File No. 2016-2 (Jan. 15, 2016) [hereinafter SEC Order].
6 Office of the Whistleblower, SEC, 2015 Annual Report to Congress on the Dodd-Frank Whistleblower Program at 21 [hereinafter 2015 Annual Report].
7 Id. at 22.
8 Id. at 1.
9 SEC Order.
10 2015 Annual Report at 16.
11 Id. at 17.
12 Id. at 16.