The SEC Whistleblower Program continued its remarkable run of success in fiscal year 2018. As detailed in its 2018 Annual Report to Congress, the SEC Whistleblower Program has been extraordinarily successful in enabling the SEC root out securities fraud and protect investors. In particular, whistleblower tips have enabled the SEC to recover more than $1.7 billion in monetary sanctions from wrongdoers (up from $1 billion reported in fiscal year 2017), including more than $901 million in disgorgement of ill-gotten gains and interest. The report also indicates that the SEC Whistleblower Program is growing and gaining momentum. In fiscal year 2018, the SEC received more than 5,200 tips, an increase of approximately 67 percent since fiscal year 2012. And during fiscal 2018, the SEC paid whistleblower awards totaling $168 million, including the three largest SEC whistleblower awards in the program’s history. In short, it appears that the SEC Whistleblower Program is now firing on all cylinders.
Highlights of the SEC Whistleblower Program’s 2018 Annual Report to Congress
The annual report details the SEC Whistleblower Program’s remarkable successes this fiscal year. Highlights include:
In fiscal 2018, the SEC issued $168 million in awards to whistleblowers, which included the three largest awards to date: a $50 million award, a $39 million award and a $33 million award. This reflects a significant increase in awards compared to fiscal year 2017 ($50 million in awards) and fiscal year 2016 ($57 million in awards). To date, the SEC has issued more than $326 million in awards to 59 whistleblowers. As the SEC Whistleblower Program continues to mature, we expect total issued awards to remain near fiscal year 2018 levels, even with the proposed $30 million cap.
The fiscal 2018 report reveals that nearly 70% of the award recipients to date were current or former insiders of the entity about which they reported information of wrongdoing to the SEC. Notably, the SEC Whistleblower Program permits key compliance personnel, including internal auditors, external auditors, officers and directors to be eligible for SEC whistleblower awards in certain circumstances.
The SEC received 5,282 tips in fiscal 2018, which is the greatest number of tips the SEC Whistleblower Program has received in its history. Since 2011, the office has received nearly 28,000 tips. The increase in tips in fiscal 2018 is likely a result of the Supreme Court’s decision in Somers, which held that individuals must report securities laws violations to the SEC to receive protection under the Dodd-Frank Act. According to the 2018 annual report, 83% of award recipients who were current or former employees of a subject entity raised concerns internally to their supervisors, compliance personnel, or through internal reporting mechanisms before reporting wrongdoing to the SEC.
The SEC actively tracks whistleblower tips that are referred to enforcement staff for investigation. In fiscal 2018, the SEC Whistleblower Program reported tracking more than 900 matters in which a whistleblower’s tip caused a Matter Under Inquiry or investigation to open, or has been forwarded to Enforcement staff for review and consideration in connection with an ongoing investigation. This represents an increase of nearly 30% compared to fiscal 2017 when the SEC reported tracking 700 matters.
Consistent with previous years, the most common whistleblower tips related to Offering Fraud (20%), Corporate Disclosures and Financials (19%) and Manipulation (12%). Other notable areas of tips related to Insider Trading, Foreign Bribery and other FCPA violations, and Unregistered Offerings.
In the fourth quarter of fiscal 2018, the SEC Whistleblower Program added “Initial Coin Offerings and Cryptocurrencies” as a new allegation category to the TCR system. The SEC received 39 whistleblower tips in this area in the year. In the coming years, we expect to see a significant increase in both whistleblower tips and enforcement actions related to digital asset/ICO fraud.
Consistent with fiscal 2017, individuals in California, New York, Texas, Florida, and New Jersey submitted the largest number of tips in fiscal 2018.
In fiscal 2018, the SEC received 12% of its tips from individuals in foreign countries, the same percentage as fiscal 2017. Individuals from the United Kingdom, Canada, and Australia submitted the highest number of whistleblower tips from foreign countries in both fiscal 2017 and 2018. Since the inception of the program, the SEC has received whistleblower tips from individuals in 119 countries outside the United States and issued awards to 12 foreign nationals or residents of foreign countries.
The 2018 report underscores how anti-retaliation protections continue to be a critical component in the success of the SEC Whistleblower Program. To date, the SEC has brought three anti-retaliation enforcement actions.
In fiscal 2017, approximately 56% of award recipients were represented by counsel, 19% of which filed anonymously. Note: The SEC Whistleblower Program only allows anonymous submissions when represented by counsel. The 2018 report does not report these statistics; however, it highlights the SEC’s commitment to protecting the confidentiality of whistleblowers, which it views this as “an integral component to the whistleblower program.”
The National Law Review | November 16, 2018