July 26, 2014

SEC Whistleblower Report Highlights New Program's Activity and Success

On November 15, the Securities and Exchange Commission released its Annual Report on the Dodd-Frank Whistleblower Program (DFWP), which is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Administered by the Office of the Whistleblower (OWB), DFWP permits a tipster to receive a reward for voluntarily submitting information that leads to a successful SEC enforcement action. The information must be original and result in a recovery of more than $1 million. Whistleblower awards must be 10% to 30% of any sanctions collected.

This is the first full-year report for DFWP and the data indicates that enforcement actions are on the rise, a trend likely to continue thanks to the growing number of tips received through the OWB. Whereas the SEC received about 650 calls to the whistleblower hotline in the five months of 2011 that DFWP was active, the hotline received over 3,000 calls in 2012. Ultimately, just over 3,000 tips were formally submitted to the OWB in 2012.

Whistleblowers reported from across the country and abroad. All 50 states, plus the District of Columbia and Puerto Rico, were represented, as were 49 countries. California, New York and Florida produced the largest number of tips, with 435 (17.4%), 246 (9.8%) and 202 (8.1%), respectively. The United Kingdom, Canada, India and China were the major international sources.

The most common type of tip concerned corporate disclosures and financials (547, or 18.2%). Offering fraud (465 tips, or 15.5%) and manipulation (457 tips, or 15.2%) were a close second and third. Although a mere 115 tips, representing 3.8% of the total, related to the Foreign Corrupt Practices Act, experts expect that number to rise. Anti-corruption enforcement continues to be a priority for the Department of Justice and SEC, and whistleblowers, such as those who report to DFWP, are likely to play integral roles in such actions.

There is more than $450 million available for whistleblower awards, which gives tipsters plenty of incentive to report. The SEC, thus far, has issued only one award through DFWP: in August, an anonymous whistleblower was awarded the maximum amount—30%—of the ultimate recovery in a multimillion-dollar fraud enforcement action. To date, that whistleblower has received close to $50,000 of the $150,000 thus far collected by the SEC. According to the report, there are 143 other enforcement actions in which whistleblowers may be eligible to receive awards; those matters are still in process.

Many predict that counsel well versed in assisting False Claims Act whistleblowers will transfer their knowledge and attention to DFWP, and thus the number and quality of tips will increase. To address this possibility, experts advise executives and management to adopt a proactive, preventive approach to compliance by promoting internal reporting, responding quickly and flexibly to issues, and focusing on international as well as domestic operations.

The US Securities and Exchange Commission’s Annual Report on the Dodd-Frank Whistleblower Program, Fiscal Year 2012, is available here.

©2014 Katten Muchin Rosenman LLP

About the Author

Emily Stern, Financial Insituations Attorney, Katten Muchin Law firm

Emily Stern focuses her practice on complex commercial civil litigation and white collar criminal investigations and defense.

In civil matters, Emily represents clients in individual and class actions, as well as at bench and jury trials, before federal, state and appellate courts and arbitral tribunals. Her litigation experience extends to consumer and securities fraud putative class actions; shareholder derivative suits and complex contract, licensing and partnership disputes in a variety of industries. She represents clients in the finance, pharmaceuticals, medical devices,...


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