The Securities and Exchange Commission (SEC) has published its 2017 Annual Report to Congress on the Whistleblower Program (Whistleblower Report), announcing over 4,480 tips and approximately $50 million in payments for fiscal year 2017 (FY2017), and 700 matters under review or investigation as of September 30, 2017.
The report, issued November 17, 2017, suggests that the SEC's whistleblower program has continued to grow by most metrics, including the volume of the tips received and the size of the awards issued, and that individual awards are increasing in size. The report also indicates that the SEC plans to focus on "retaliation against whistleblowers and potential actions to impede communications with the Commission" during the upcoming fiscal year.
- Punishing companies that discourage whistleblowing: Companies should assess agreements to make sure they comply with the SEC's rule that prohibits actions that would chill whistleblowers from communicating with the SEC staff regarding potential violations. There were four actions in FY2017 against companies that the SEC accused of taking such actions. Confidentiality and severance agreements are a key area of concern.
- Punishing companies that retaliate against whistleblowers: Retaliation remains a focus of the SEC, which has construed the Dodd-Frank Act's anti-retaliation provisions as applicable even when an employee reports conduct internally as opposed to reporting externally to the SEC. The SEC took that position in its only FY2017 retaliation case, where an oil and gas company was accused of terminating an employee in retaliation for raising concerns to company management about how the company calculated its reserves. Later this month, the Supreme Court will hear oral arguments in a case that challenges the SEC's interpretation of the anti-retaliation provisions. In March 2017, the Ninth Circuit held in that case that whistleblowers can sue their employers for retaliatory termination even if they did not report the conduct at issue to the SEC.
- Higher-value awards: Whistleblower awards continue to grow. Three of the SEC's ten largest whistleblower awards were made in FY 2017, including a $20+ million award to a whistleblower whose tip "led to a near total recovery of investor funds," a $7 million award to three whistleblowers "who helped the SEC stop an investment scheme that defrauded hundreds of investors," and a $5.5 million award to a company insider who revealed an ongoing fraud. The following chart from the Whistleblower Report spells out the detail.
Source: 2017 Annual Report to Congress on the Whistleblower Program
Notably, this chart does not reflect a $4 million award that the SEC gave to a whistleblower in April 2017 who was recognized for not only exposing serious misconduct but also providing the SEC with "assistance during the ensuing investigation, including industry-specific knowledge and expertise."
- Similar category trends: Tips to the SEC are many and varied. In FY2017, the SEC received 4,484 tips, an increase from the 4,218 tips received in FY2016. The total number of tips has risen every year since the whistleblower program began. In FY2017, the most common tip categories were Corporate Disclosures and Financials (21.3 percent), Offering Fraud (16.9 percent), Manipulation (10.4 percent), Trading and Pricing (6 percent), Insider Trading (5 percent), and FCPA (4.7 percent). The FY2016 tips had a nearly-identical spread, with Insider Trading tips slightly edging out Trading and Pricing tips: Corporate Disclosures and Financials (22 percent), Offering Fraud (15 percent), Manipulation (11 percent), Insider Trading (6.2 percent), Trading and Pricing (6.1 percent), and FCPA (5.6 percent).
- Increase in international tips: Non-US whistleblowers continue to be a source of information for the SEC. In FY2017, 11.5 percent of the whistleblower tips (514 in total) came from outside of the United States – a .5 percent increase over the number of international whistleblower tips (462 in total) in FY2016. Similar to FY2016, most of the international tips in FY2017 came from the United Kingdom, Canada, and Australia, but a significant number of tips also came from China and Mexico. There were marked increases in tips from Russia (26 tips in FY2017; 6 tips in FY2016) and Hong Kong (23 tips in FY2017; 1 tip in FY2016) over the last fiscal year.
The Whistleblower Report highlights the vigor and success of the SEC's whistleblower program – a program that continues to grow. Businesses should pay attention and develop effective policies and procedures to address whistleblower issues.