United States: SEC Whistleblower Program Sees Record-Breaking Year

Last Updated: April 18 2019
Article by Rebecca M. Katz

In its annual report for the 2018 fiscal year, the SEC's Office of the Whistleblower recently announced that it awarded $168 million to 13 whistleblowers over the course of the year. Perspective — $168 million is more than half of the total $326 million awarded to whistleblowers since the program was created in 2010 under the Dodd-Frank Act. Last year's total included the largest-ever award of $83 million, which was given to three people who "provided significant information regarding serious violations that otherwise may have gone unnoticed and resulted in substantial enforcement actions." Moreover, the program's gains in 2018 brought its total monetary sanctions against wrongdoers to $1.7 billion, with $452 million returned, or scheduled to be returned, to harmed investors. And, to top it all off, the SEC reported that it received more than 5,200 whistleblower tips during the year — a nearly 76 percent increase from fiscal year 2012.

2018 was the latest in a series of "record-breaking" years for the SEC, which certainly comes as good news for whistleblowers. If the numbers are any indication, the SEC whistleblower program is not only strong, but thriving, and incentives are available for those who have or are considering blowing the whistle on fraud and misconduct:

  • Complete anonymity: The SEC whistleblower program is the only program that ensures complete anonymity of the whistleblower — though the whistleblower must be represented by an attorney.
  • Identifiable information withheld: The program is also prohibited from disclosing any information provided by the whistleblower that could reveal their identity.
  • Retaliatory protections: The program has enhanced retaliatory protections for whistleblowers, including those who come forward with information that does not qualify for an award.
  • Significant awards for valuable information: Monetary awards to whistleblowers for "high-quality original information" that leads to an enforcement action must range from 10 to 30 percent of the total amount collected.

Worth it to report to the SEC? Yes.

If you look a little closer, several factors are at play as to why the program is seeing the level of success it is today, one of the largest being a U.S. Supreme Court decision in March 2018 concerning the Digital Realty Trust, Inc. v. Somers case. The crux of the case revolved around conflicting circuit court opinions on what protections Dodd-Frank provided for whistleblowers who suffered retaliation after reporting violations internally to their employer, but not directly to the SEC. After reviewing the case, the Supreme Court decided in a 9-0 ruling that only whistleblowers who reported to the SEC prior to experiencing retaliation were entitled to the law's retaliation protections. The decision had a significant impact on the program over the course of the year, with some initial reactions leaning toward concern regarding whether the decision would potentially harm whistleblowers.

The effect of this decision is already being felt in whistleblower cases across the country, including that of a former Bio-Rad Laboratories, Inc. general counsel who argued on appeal before the Ninth Circuit that his $11 million verdict should be upheld considering his former employer fired him in retaliation after he raised concerns about potential violations of the Foreign Corrupt Practices Act. The Court, however, cited Digital Realty when it decided to decrease the whistleblower's award by nearly $3 million holding that the general counsel did not qualify for Dodd-Frank retaliation protections because he reported internally instead of to the SEC.

The SEC whistleblower program is still relatively young, and in a previous blog post I discussed how important it is that potential whistleblowers consult with a knowledgeable attorney so that they can better navigate this complex and still-developing area of law.

A year after the Digital Realty decision, however, it appears that the ruling has actually strengthened the SEC whistleblower program overall by inducing whistleblowers to report to the SEC sooner – a trend that was demonstrated this past year, considering that the SEC received an influx of tips in the months after the ruling was handed down.

The work being done by the SEC to deter corporate misconduct is crucial. It is promising to see that the SEC has responded to the program's growth and is recognizing the significant contribution of whistleblowers by paying large awards to those who bravely shine a light on misconduct.

As the SEC's whistleblower program has become an important part of its overall enforcement efforts, whistleblowers who believe that a fraud has occurred should have their claim assessed by an experienced and qualified attorney to determine whether filing a whistleblower claim with the SEC is warranted.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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