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SEC Announces Second-Largest Whistleblower Award In Program’s History
04/20/2021On April 15, 2021, the Securities and Exchange Commission (“SEC”) announced a joint award of just over $50 million to a pair of whistleblowers, which represents the second-largest award in the whistleblower program’s history. The SEC’s press release noted that the two recipients reported on “violations that involved highly complex transactions [that] would have been difficult to detect” without the information they provided. This $50 million award continues a record-setting pace for the whistleblower program. The SEC has now awarded over a quarter of a billion dollars to whistleblowers in the first seven months of fiscal year 2021 (“FY2021”) alone, which kicked off with an award of $114 million in October 2020—the largest in the program’s history.
To qualify for an award under Section 21F of the Securities Exchange Act of 1934 (“Exchange Act”), a whistleblower must voluntarily provide the SEC with original information that leads to the successful enforcement of a covered judicial or administrative action. 15 U.S.C. § 78u-6(b)(1). The SEC awards between 10% and 30% of the total monetary sanctions recovered, when they exceed $1 million. As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and takes steps not to disclose information that could reveal a whistleblower’s identity; thus, there is limited information to be gleaned about the precise nature of the whistleblowers here or their interactions with the SEC.
This latest award is striking for its size, and it also serves as a reminder that the SEC’s efforts to increase whistleblowing has had a real impact. The number of tips and the amounts of awards have both been on an upward trend since the inception of the whistleblowing program in 2012. The SEC had previously announced in its 2020 Annual Report that its whistleblower program awarded $175 million to 39 individuals in that single year, which was approximately 37% of the total number of individuals who have received awards over the life of the program. 2021 looks to continue the trend.
While the SEC rules permit (and even in some ways encourage) potential whistleblowers to raise matters internally before reporting concerns to the SEC, the reality is that, in light of such sizeable awards, companies continue to face a risk that matters will be reported externally before they can be reviewed and considered internally. To mitigate that risk, companies should continually assess their compliance programs and develop strategies to encourage internal reporting and cultures of compliance.
