Annual Whistleblower Report is Here
The annual SEC whistleblower report to Congress for Fiscal Year 2017 has been released. It provides information and data about the activities of the SEC Whistleblower Office (referred to in the report as OWB) from October 1, 2016 to September 30, 2017. Over the year period, the SEC received over 4,400 whistleblower tips during Fiscal Year 2017 and paid out awards totaling nearly $50 million. The SEC also brought a number of enforcement actions to address companies that unlawful retaliated against or impeded whistleblowers.
The SEC has now paid our approximately $160 million to 46 whistleblowers since the Dodd-Frank Act created the SEC whistleblower program. Three of the top four awards were announced in 2016 and two of the top 10 awards were announced in 2017. All three awards from FY2017 that were on the top 10 list involved the protection of investor funds.
As has been the case in several other reports, the annual report provided select anonymized data about the successful whistleblowers. Here is some of the data that we found interesting:
- Two-thirds of them provided the impetus for the SEC to open the investigation. One-third of the paid whistleblowers assisted with an already-existing investigation.
- About 62 percent of award recipients were current or former insiders of the entity they reported. Other types of insiders such as consultants or close affiliates, industry professionals, harmed or prospective investors, and other outsiders made up the rest.
- Of the current or former employees, almost 83 percent raised their concerns internally to their supervisors, compliance personnel, through internal reporting mechanisms, or understood that one or more of these individuals were already aware of the information before they reported to the SEC.
- The majority of individuals were represented by legal counsel at the time they initially submitted their tips to the SEC.
- In cases resulting in awards, individuals represented 47% of the defendants, unregistered entities and companies 25%, and registered entities such as broker-dealers, investment advisors and other registered market participants were 28% of defendants
- Nine recipients were foreign nationals or residents of foreign countries when they submitted tips.
The SEC also provided a chart of the percentage of primary securities violations in covered actions assisted by whistleblowers. Here is a summary of the chart:
Misrepresentations/omission violations: 28%
Corporate/issuer disclosure (i.e., FCPA, accounting and offering document issues): 22%
Offering fraud (including Ponzi and pyramid schemes): 22%
Trading violations (including insider trading): 11%
Sales and advisory practices violations: 8%
Other (including operational, registration and fees/markups/commissions violations): 9%
Breakdown of Whistleblower Tips Submitted in FY2017
We can also take a look at the division of tips going into the SEC according to the whistleblower’s own characterization of the violation type:
Corporate Disclosures and Financials: 954
Offering Fraud: 758
Manipulation: 468
Trading and Pricing: 271
Insider Trading: 231
FCPA: 210
Unregistered Offerings: 144
Market Event: 125
Municipal Securities and Public Pension: 67
Breakdown of International Tips
The SEC received tips in FY 2017 from individuals in 72 foreign countries. The top five countries outside of the United States for tips were:
United Kingdom: 84
Canada: 73
Australia: 48
China: 39
Mexico and Russia: 26 (tied)
Tips by State
The leading states for tips within America were:
California: 500
New York: 438
Texas: 250
Florida: 229
New Jersey: 175
The Chief’s Annual Message
The message from Jane Norberg, chief of the Office of the Whistleblower, at the beginning of the report specifically mentioned the “critical role of whistleblowers” in protecting investors. Since its inception, whistleblower tips have helped recover $671 million in disgorgement, the majority of which has or is scheduled to be returned to harmed investors. The focus on this role continues the message sent by the Enforcement Division last week in its report that protecting retail investors was a top priority of the securities regulator.
The other key aspect of Norberg’s message was Rule 21F-17 and the SEC’s enforcement of the whistleblower protections. We have written about these SEC regulation here before. Rule 21F-17 prohibits impeding communications between the SEC and whistleblowers. During the last fiscal year, the SEC brought a number of enforcement actions against corporations for efforts to uncover the identity of whistleblowers or restrictive language in severance and separation agreements.
The SEC also independently brought an enforcement action for terminating an employee in violation of the Dodd-Frank whistleblower anti-retaliation provisions. Norberg said that reviewing allegations of violations of these laws would “continue to be a focus … in the upcoming fiscal year to ensure that whistleblowers can free report information … without fear of reprisal.”
The other area that was mentioned was the office’s hotline. Since the whistleblower hotline was established at the SEC, the OWB has returned over 18,600 calls from the public. In the last fiscal year, it returned nearly 3,200 calls, an increase over FY2016. We have found this to be a very helpful service that the SEC provides for whistleblowers and their attorneys.
The report also discusses the efforts of the Whistleblower Office on behalf of whistleblowers in federal court cases involving anti-retaliation provisions. It specifically mentions the U.S. amicus curiae brief filed in the Supreme Court in Digital Realty Trust, Inc. v. Somers, which is to be heard by the Court at the end of this month. Somers provides the Court the opportunity to hold that a whistleblower is protected by the Dodd-Frank anti-retaliation provisions even if they only reported internally to a manager or supervisor rather than file a Form TCR with the SEC.
The 2017 annual report is the second issued by Jane Norberg after she succeeded Sean McKessy. It marked the first full year of her leadership at the OWB. McKessy announced that he was leaving the SEC Office of the Whistleblower in July 2016.
Update
The SEC also released its financial report recognizing a contingent liability of $221 million for the year ending on Sept. 30, 2017. This means that the SEC expects that additional whistleblower awards are probable in that amount. The awards have not been announced yet and there is no indication at what stage the SEC will recognize a future payout as a contingent liability.
Our Offer
As always, our attorneys are available for a free, confidential initial consultation with potential SEC whistleblowers. Please call 1-800-590-4116 to speak to an SEC whistleblower attorney at Young Law Group.