Last week, the U.S. Securities and Exchange Commission’s Office of the Whistleblower, created in 2011 pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, released its mandated report to Congress on operations for Fiscal Year 2014, ending on September 30, 2014. A number of interesting facts, statistics and developments were reported. Here is a selection of particularly relevant highlights:
- FY 2014 was the most active year yet in terms of whistleblower awards. The SEC has made awards to 14 whistleblowers since inception of the program, including 9 in 2014 alone.
- “To date, over 40% of the individuals who received awards were current or former employees;” another 20% were company consultants or contractors, or had been solicited to act as consultants.
- According to the SEC, over 80% of those receiving awards reportedly raised their concerns internally to supervisors or compliance professionals before going to the SEC, which means nearly 20% are still skipping internal whistleblower reporting policies and systems.
- “Several of the cases in which a whistleblower received an award concerned firms involved in the financial services industry, with some involving broker-dealers.” Alleged wrongdoing included on-going Ponzi schemes, false or misleading statements in offering memoranda or marketing materials, and false pricing information.
- On September 22, 2014, the SEC authorized payment of its largest whistleblower award to date — over $30 million. This was the fourth overseas whistleblower to receive an award, highlighting that whistleblowers around the world are eligible for awards and the importance for employers of implementing whistleblower and compliance policies globally.
- On August 29, 2014, the SEC authorized its first award to a compliance or audit professional – over $300,000 to an auditor who blew the whistle internally and waited 120 days before reporting to the SEC, during which time the company had taken no action on the allegations. The auditor therefore satisfied one of the exceptions to exclusion from eligibility for awards for compliance and audit professionals.
- On July 31, 2014, the SEC issued an award of over $400,000 to an independent agent of an insurance company, who had “aggressively worked internally to bring the securities law violation to the attention of appropriate personnel in an effort to obtain corrective action” regarding misleading descriptions of financial products. Although the SEC did not disclose the name of the whistleblower or the company, the whistleblower himself went to the press after receiving the award, identifying himself as well as his employer in telling his story.
- On June 16, 2014, the SEC exercised its own anti-retaliation enforcement authority for the first time, charging a hedge fund advisory firm with retaliating against its head trader for reporting prohibited principal transactions to the SEC. The alleged retaliatory acts included removing the whistleblower from his position and making him a compliance assistant, stripping him of supervisory responsibility, and making him investigate the very wrongdoing he reported to the SEC without any meaningful resources to do so. The firm and its owner paid $2.2 million to settle the charges – with full disclosure by the SEC of, and publicity regarding, the identity of the firm and its owner.
The full report is available on the SEC’s Office of Whistleblower website – click here.