The accelerated pace and size of awards to whistleblowers totaling more than $530 million in SEC Fiscal Year 2021 underscores the commitment to the whistleblower program under new SEC leadership.
On September 15, 2021, the SEC announced an award of $110 million to a whistleblower, the second highest award in program history following the $114 million award announced in October 2020, for providing information that led to a successful SEC enforcement action and two related actions. Whistleblowers who provide the SEC with original, timely, and credible information that leads to a successful enforcement action are eligible to receive an award that can range from 10%-30% of the money collected when monetary sanctions exceed $1 million. The $110 million award consisted of an approximately $40 million award in connection with an SEC case and an approximately $70 million award arising out of two related actions by another agency.
The SEC Order granting the $110 million award stated that the original information provided by the whistleblower included a detailed suggested witness list as well as "independent analysis" that incorporated publicly available information "in a way that went beyond the information itself and afforded the Commission with important insights into the extent of Company 1's misconduct as well as other relevant conduct." Notably, the announcement of the $110 million award included a statement from both SEC Chair Gary Gensler and SEC Director of Enforcement Gurbir Grewal recognizing the important role that whistleblowers play in helping the SEC to investigate and prosecute potential violations of the securities laws.
In addition to the accelerated number and size of awards to whistleblowers-more than $530 million was awarded to more than 100 individuals in the SEC's fiscal year 2021, which ended on September 30-several recent awards underscore the pro-whistleblower stance of the SEC. The $110 million award was made to a whistleblower who submitted information after the SEC Staff had already opened an investigation and became aware of potential misconduct at a company.
Other events from 2021 that highlight these trends include:
- On May 19, 2021, the SEC awarded more than $28 million to a whistleblower while noting that there was "not a strong nexus" between the information provided and the charges brought by the SEC and another agency because they involved different geographic regions.
- On June 2, 2021, the SEC announced an award of $10 million to a whistleblower who had filed a claim 18 days after the filing deadline had lapsed.
- On August 2, 2021, Chair Gensler issued a public statement announcing that the SEC will address policy concerns raised by whistleblower advocates and others about two amendments to the program rules adopted in September 2020, including one that gave the SEC discretion to lower certain large whistleblower awards. Just three days later the SEC announced that it would exercise its discretion only to increase award amounts.
- Finally, on September 28, 2021, the SEC barred two individuals from participation in the whistleblower program for filing hundreds of frivolous applications and noted that frivolous award applicants hamper the SEC's ability to efficiently process awards to meritorious whistleblowers.
The magnitude and volume of recently announced whistleblower awards and the clearly pro-whistleblower stance of SEC leadership will likely increase incentives for whistleblowers to provide information about potential violations of the securities laws directly to the government. In response, companies should consider reviewing their internal compliance policies and procedures, with particular attention to their protocols for prompt and effective response to internal claims of alleged misconduct or possible violations of the securities laws.
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