The Securities Exchange Commission (SEC) issued its first award in 2012, and the total in the following ten years stands at $1.1 billion. This total involves payments to 207 whistleblowers. Over that time, the amounts increased to a current record of $114 million in October 2020. In the last fiscal year alone, the SEC issued $500 million, including a recent award of $110 million. These amounts range on 10-30% of the penalties or monetary sanctions that exceed $1 million. No awards come out of taxpayers’ pockets.
“The whistleblower program has been instrumental to the success of numerous enforcement actions since it was instituted a decade ago,” said SEC Director of Division of Enforcement Gurbir S. Grewal on Sept. 15, 2021, press release. “We hope that today’s announcement encourages whistleblowers to continue to come forward with credible information about potential violations of the securities laws.”
As guaranteed by the Dodd-Frank Act, the SEC does not reveal the details of the information and the whistleblowers’ identity. The goal is to protect average investors who own $29 trillion worth of equities — more than 58 percent of the U.S. equity market — either directly or indirectly through mutual funds, retirement accounts and other investments.
Two amendments challenged whistleblower awards and protections
There were two amendments that potentially that could negate the success of the SEC’s whistleblower program. These reportedly disincentivized whistleblowers from coming forward and negatively impacted the potential for awards.
One amendment would have prevented the SEC from providing rewards when other government or regulatory agencies or whistleblower award programs were involved. While this appeared to avoid getting paid twice for the same case, it could limit or eliminate the chance of an award if the whistleblower was deemed illegible under another program.
The other amendment was to allow the SEC to reduce awards because others viewed them as too large. This would mean countering the usual percentages awarded based on a successful tip or cooperation. This option to adjust awards size would mean the whistleblower could not confidently estimate the size of the reward (using the 10-30% formula) before coming forward.
According to the Wall Street Journal, the amendments briefly went into effect in early 2021, but they were subsequently challenged in a federal lawsuit not filed by this firm. As of now, these amendments are not in effect. This news bodes well for other whistleblowers wishing to work with the SEC.
