Takeaways from the SEC Whistleblower Office’s Annual Report
Each year the U.S. Securities and Exchange Commission (SEC) Office of the Whistleblower releases an Annual Report to Congress detailing the activities of the highly successful SEC Whistleblower Program. The annual report for the 2022 Fiscal Year (FY 2022), which ended on September 30, reveals that the SEC Whistleblower Program had a record-setting fiscal year. The SEC received a record 12,300 whistleblower tips in FY 2022 and issued 103 whistleblower awards totaling approximately $229 million.
Here are some key takeaways from the report:
SEC Whistleblower Program Continues Success of Record-Shattering FY 2021
“Fiscal Year (FY) 2022 continued to build on the record-breaking success of FY 2021 for the U.S. Securities and Exchange Commission’s Whistleblower Program,” the report begins. In fact, FY 2021 was not just a record-breaking year but a record-shattering one. That year, the SEC received a record 12,200 whistleblower tips and issued a record $564 million in whistleblower awards to a record 108 individuals. Over the course FY 2021, the whistleblower program issued more awards than in all previous years combined.
The SEC Whistleblower Program’s Annual Report for FY 2022 shows that FY 2021 was not a fluke. In FY 2022 the SEC received a new record 12,300 whistleblower tips. It also once again issued over 100 whistleblower awards. While the overall monetary amount awarded to whistleblowers dipped, the difference can almost entirely be attributed to two $100 million-plus awards issued by the SEC in FY 2021. The increase in whistleblower tips and consistency in number of awards issued shows that the SEC Whistleblower Program is not slowing down after the eye-popping stats of FY 2021.
“The significant increase in the number of whistleblower tips and awards since the program’s inception shows that the program, with its enhanced confidentiality protections, is effectively incentivizing whistleblowers to make the often difficult decision to come forward with information about potential securities-law violations,” Creola Kelly, Chief of the Office of the Whistleblower, said in the report. “Regardless of whether a whistleblower is a corporate insider, a main street investor, or an unrepresented claimant, the Commission vigorously safeguards their identity while rewarding eligible individuals who identify bad actors in our markets.”
Whistleblowers Report Information on a Wide-Range of Fraud
The SEC Whistleblower Program offers monetary awards and anti-retaliation protections to individuals who voluntarily provide original information about securities law violations. Given that there is a widespread variety of securities law violations, it should come as no surprise that the record number of whistleblower tips received by the SEC in FY 2022 covered a number of different types of fraud. According to the report, “[t]he most common complaint categories reported by whistleblowers were Manipulation (21%), Offering Fraud (17%), Initial Coin Offerings and Cryptocurrencies (14%), and Corporate Disclosures and Financials (13%).”
In all, the different types of misconduct reported by whistleblowers in FY 2022 included:
Manipulation: 2,558 tips
Offering Fraud: 2,042 tips
Initial Coin Offerings and Cryptocurrencies: 1,718 tips
Corporate Disclosures and Financials: 1,554 tips
Insider Trading: 396 tips
Trading and Pricing: 374 tips
Unregistered Offerings: 246 tips
Foreign Corrupt Practices Act: 202 tips
Market Event: 140 tips
Municipal Securities and Public Pension: 95 tips
The SEC Whistleblower Program has a Global Reach
According to the report, “the Whistleblower Program has become fundamentally international in character, with tips received from all over the world.” Individuals do not need to be U.S. citizens or residents to qualify for SEC whistleblower awards. Furthermore, misconduct that occurs abroad often constitute SEC violations. The report notes that “[i]n FY 2022, the foreign countries from which the highest number of tips originated were Canada, the United Kingdom, Germany, China, Mexico, and Brazil.”
2022 Rule Changes Better Incentivize Whistleblowing
In August 2022, the SEC adopted two amendments to the SEC Whistleblower Program rules. According to the report, these rule changes, which were supported by whistleblower advocates, “help ensure that whistleblowers are both incentivized and appropriately rewarded for their efforts in reporting potential violations of the law to the Commission.”
The first rule change clarified the SEC’s authority to pay related action awards to whistleblowers even when the related action was carried out by an agency with its own whistleblower program. The report explains that under the new rule, the SEC “will make an award on the other action if the other agency’s whistleblower program is not comparable to the Commission’s or if the total amount awarded could not exceed $5 million.”
The second rule change affirms the SEC’s authority to consider the dollar amount of a potential whistleblower award as a reason for increasing the award size, but it also states that the SEC will not consider the dollar amount of an award as a reason to decrease the size of an award.
The SEC is Committed to Protecting the Employees’ Right to Blow the Whistle
The report also details the SEC’s efforts to protect employees’ right to blow the whistle. The report explains that “the Dodd-Frank Act allows the Commission to bring actions against any person, including a company, for impeding an individual’s ability to report potential securities-related misconduct to the Commission.
In FY 2022, the SEC brought two such enforcement actions. In June, the SEC charged the Brink’s Company over language in confidentiality and nondisclosure agreements which restricted whistleblowing. In April, the SEC announced settled charges against the co-founder of the technology company NS8, Inc. for impeding an individual from communicating with the SEC about potential securities violations.
The Overall Success of the SEC Whistleblower Program is Indisputable
In addition to detailing the whistleblower program’s success in FY 2022, the SEC Whistleblower Office’s report highlights the overall success of the program since it was established with the passage of the Dodd-Frank Act in 2010.
“Since the beginning of the program, the SEC has paid more than $1.3 billion in 328 awards to individuals for providing information that led to the success of SEC and other agencies’ enforcement actions,” the report states. “Whistleblowers have played a critical role in the SEC’s enforcement efforts in protecting investors and the marketplace. Enforcement actions brought using information from meritorious whistleblowers have resulted in orders for more than $6.3 billion in total monetary sanctions, including more than $4.0 billion in disgorgement of ill-gotten gains and interest, of which more than $1.5 billion has been, or is scheduled to be, returned to harmed investors.”
Geoff Schweller also contributed to this article.