The U.S. Securities and Exchange Commission (“SEC” or “Commission”) released the Fiscal Year 2021 Annual Report (“Report”) of the SEC Whistleblower Program (“Program”) on November 15th, 2021. The Report outlines another record-breaking year for the Office of the Whistleblower (“OWB”), which received a record number of whistleblower complaints and awarded the largest dollar amount in the Commission’s history, awarding more in Fiscal Year (“FY”) 2021 than all previous years combined. The report also displays that the SEC Whistleblower Program attracts meritorious complaints, compensating harmed investors and rewarding whistleblowers.
Notable takeaways from the Report include:
- The SEC received more than 12,200 whistleblower tips – by far the most significant number of tips in any year of its existence. The number of tips is a 76% increase over FY 2020 and a 300% increase since the Program’s inception in FY 2012;
- The SEC received whistleblower tips from all 50 states and D.C., with California, Maryland, Florida, New York, and Texas yielding the highest number of tips. In addition, the SEC received whistleblower claims from 99 foreign nations though most of which came from Canada, China, and the United Kingdom;
- The SEC awarded approximately $564 million to 108 individuals – representing the largest dollar amount and the largest number of individuals awarded in a single fiscal year when compared to the $1.1 billion that has been awarded to 214 individuals over the entire lifetime of the Program;
- The SEC paid the two largest whistleblower awards in the Program’s history – a $114 million award to one whistleblower in October 2020 and a $110 million award in September 2021;
- Of the 108 whistleblowers who received awards, 56% provided firsthand information that caused the OWB to open an investigation or examination.
- Of the award recipients, approximately 60% were current or former insiders of the institution they had reported for wrongdoing. Of these recipients, 75% had voiced their concerns internally and understood that their superiors or relevant personnel were aware of wrongdoing before reporting their information to the SEC; and
- The most prevalent complaints reported by whistleblowers were Manipulation (25%), Corporate Disclosures and Financials (16%), Offering Fraud (16%), Trading and Pricing (6%), and Initial Coin Offerings and Cryptocurrencies (6%).
What Does the SEC Report Mean for Future Whistleblowers?
As stated in the SEC Report, the Commission has received a record number of whistleblower complaints in the last year, which represents a massive increase over the preceding year. The Commission attributed these record-breaking numbers to the abnormally large awards paid out in FY 2020, which drew the attention of prospective whistleblowers who are hoping to receive similar awards. While the SEC believes this is a sign that its efforts to attract meritorious whistleblower claims are succeeding, this influx of tips means that the Commission may become clogged with possible whistleblower cases slowing down the investigation or examination process. The tip influx means increased competition for new whistleblowers as the Commission will only move forward with a select few cases. The FY 2021 massive awards may exacerbate this issue in 2022.
The $564 million awarded to 108 individuals in FY 2021 is also significant to whistleblowers in two ways. First, the large rewards are extremely attractive to whistleblowers and will be a primary reason that whistleblowers pursue future claims with the SEC. Second, with FY 2021 accounting for almost half of those awarded in the Commission’s history, it is apparent to whistleblowers that the Commission is resolving an increasing number of claims per year, possibly reflecting the Commission’s ability to keep up with the growing volume of claims they receive.
Of the 108 individuals awarded in FY 2021, 44% received awards due to their original information contributing to an existing investigation, indicating that whistleblowers can still receive an award for helping an existing claim – provided, of course, that they have new information that is relevant to the claim.
The SEC report also warns those who wish to manipulate the whistleblower process for financial gain. The SEC barred two individuals from submitting whistleblower complaints in FY 2021. These individuals submitted hundreds of frivolous claims and awards applications with the intent to receive awards for claims for which they had no relevant information. The SEC noted that such false submissions slow down the investigation process drawing essential resources away from meritorious claims, and therefore this conduct will not be tolerated.
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