SEC Whistleblowers: Their Role and Impact on Investigations

SEC Whistleblowers: Their Role and Impact on Investigations

Whistleblowers play a critical role in uncovering securities fraud and other violations of federal securities laws. By coming forward with insider information, whistleblowers can help the Securities and Exchange Commission (SEC) identify misconduct much earlier than would otherwise be possible.

In this article, we’ll take a look at who qualifies as an SEC whistleblower, the protections they receive, and the impact whistleblower tips have had on SEC investigations and enforcement actions.

Who Qualifies as an SEC Whistleblower?

The SEC defines a whistleblower as someone who voluntarily provides the agency with original information about a possible violation of federal securities laws. This can include violations that have already occurred, are ongoing, or are about to happen¹.

To qualify for an award through the SEC Whistleblower Program, the information provided must lead to a successful enforcement action resulting in monetary sanctions exceeding $1 million. Whistleblowers may be eligible for an award ranging from 10% to 30% of the money collected.

Whistleblowers can include:

• Employees at public companies
• Employees of financial firms like broker-dealers and investment advisers
• Outside consultants
• Contractors
• Suppliers
• Investors
• Accountants
• Attorneys
• Auditors
• Anyone with knowledge of possible securities law violations

In other words, whistleblowers can come from nearly any background or position, as long as they have credible original information about misconduct.

Protections for SEC Whistleblowers

Understanding the robust protections available is key for potential SEC whistleblowers. The SEC wants individuals to feel safe coming forward, without fear of losing their job or facing other retaliation.

The SEC provides the following protections for whistleblowers²:

• Anonymity – Whistleblowers have the option to remain anonymous, at least until a reward is paid.
• Confidentiality – The SEC protects whistleblowers’ confidentiality and does not disclose any identifying information without consent.
• Employment protection – It is illegal for companies to retaliate against whistleblowers for reporting possible securities violations.
• Monetary compensation – Eligible whistleblowers can receive substantial monetary awards.

In addition, whistleblowers are protected from retaliation for:

• Providing information to the SEC under the whistleblower program
• Initiating, testifying in, or assisting the SEC in an investigation or proceeding
• Making disclosures required or protected under certain laws like Sarbanes-Oxley and Dodd-Frank

If whistleblowers suffer retaliation, they can file a complaint with the Occupational Safety and Health Administration (OSHA) and may be entitled to reinstatement, back pay, and other remedies.

Impact of Whistleblower Tips

Since the SEC Whistleblower Program began in 2011, the agency has received over 38,000 whistleblower tips and opened more than 1,000 related investigations. The tips have come from individuals in all 50 states as well as 95 foreign countries³.

Whistleblower information has proven highly useful for detecting and prosecuting securities law violations that may have otherwise gone unnoticed. According to the SEC, about 80% of the monetary sanctions collected from whistleblower cases have come from tips that were “not detected by SEC through its own review of market activities, filings, or through prior complaints”⁴.

The agency has brought enforcement actions based on whistleblower information against major financial institutions like JPMorgan, UBS, and Bank of America. Cases have involved violations such as accounting fraud, insider trading, and market manipulation.

As of September 2022, the SEC Whistleblower Program has awarded approximately $1.3 billion to 279 individuals since issuing its first award in 2012⁵. Some notable awards include:

• $114 million to a whistleblower in October 2022 – the largest award to date.
• $110 million to two whistleblowers in April 2022.
• $37 million to a whistleblower in September 2021.
• $50 million to joint whistleblowers in March 2018.

The program has proven successful in incentivizing insiders to come forward with specific, credible evidence of wrongdoing. According to SEC Chair Gary Gensler, “Whistleblowers have provided tremendous value to the SEC’s enforcement efforts for more than a decade and played a critical role in returning billions of dollars to harmed investors”⁶.

Providing Effective Information to the SEC

While whistleblowers can submit tips without an attorney, working with experienced SEC whistleblower counsel can help maximize the impact and increase the chances of receiving an award.

According to Andrew Ceresney, former Director of the SEC Division of Enforcement, counsel can assist whistleblowers in⁷:

• Navigating the process and procedures for submitting tips.
• Putting together well-organized, specific, and credible submissions.
• Promptly responding to any follow-up inquiries or requests from SEC staff.
• Providing effective assistance during the course of an investigation.

The SEC states that whistleblower tips are most useful when they are⁸:

• Specific – The who, what, when, where, and how of the alleged misconduct should be detailed.
• Credible – The allegations should be plausible and based on firsthand knowledge or independent evidence.
• Timely – Learning about potential violations sooner allows the SEC to take action more quickly.

Whistleblowers can help investigations by:

• Explaining complex transactions, deals, or products involved in the alleged misconduct.
• Identifying key witnesses and their roles.
• Providing examples of documentary evidence like emails, reports, memos, or invoices.
• Assisting with understanding technical concepts related to the case.

While whistleblowers are not required to demonstrate all the elements of legal violations, providing detailed context helps the SEC evaluate the credibility of submissions.

Conclusion

The SEC Whistleblower Program has proven tremendously successful in identifying major securities violations since its inception. Insider tips have led to billions in monetary sanctions against financial institutions and public companies.

Robust protections and monetary incentives have spurred individuals to come forward with specific, credible allegations of wrongdoing. This has allowed the SEC to take swift enforcement action to minimize investor harm and hold violators accountable.

Whistleblowers have played an indispensable role in strengthening market integrity, transparency, and fairness. Their courage in speaking out makes the capital markets safer and helps deter future misconduct.

References

1. U.S. Securities and Exchange Commission, “Office of the Whistleblower Frequently Asked Questions.” Accessed February 20, 2023.↩

2. U.S. Securities and Exchange Commission, “Office of the Whistleblower – Retaliation.” Accessed February 20, 2023. ↩

3. U.S. Securities and Exchange Commission, “Office of the Whistleblower.” Accessed February 20, 2023.↩

4. U.S. Securities and Exchange Commission, “2022 Annual Report to Congress: Whistleblower Program.” November 15, 2022. ↩

5. U.S. Securities and Exchange Commission, “SEC Awards Approximately $18 Million to Three Whistleblowers.” January 19, 2023. ↩

6. U.S. Securities and Exchange Commission, “SEC Awards Approximately $18 Million to Three Whistleblowers.” January 19, 2023. ↩

7. Andrew Ceresney, “The SEC’s Whistleblower Program: The Successful Early Years.” September 14, 2016. ↩

8. U.S. Securities and Exchange Commission, “Office of the Whistleblower.” Accessed February 20, 2023. ↩