Fiscal year 2014 marked an historic year for the Securities and Exchange Commission’s Whistleblower Program both in terms of the number and dollar amount of whistleblower rewards the agency doled out, according to the SEC’s annual report to Congress.

"Fiscal Year 2014 was historic for the office in terms of both the number and dollar amount of whistleblower awards," Sean McKessy, Chief of Office of the Whistleblower, said in the report. "The Commission issued whistleblower awards to more individuals in Fiscal Year 2014 than in all previous years combined."

The SEC received 3,620 whistleblower tips in 2014, compared to 3,238 last year. Since its inception in 2011, the SEC has doled out awards to 14 whistleblowers, nine of which received whistleblower awards this year.

"Not only did the number of whistleblower rewards rise signficantly, but the magnitude of the award payments was record-breaking," McKessy said. This year saw the largest ever whistleblower award of more than $30 million given to a whistleblower who provided important information that led to a successful enforcement action. “The whistleblower in this matter provided information of an ongoing fraud that otherwise would have been very difficult to detect,” McKessy said.

The SEC also has renewed its focus on the anti-retaliation provisions of the whistleblower regime in reaching its first settlement of $2.2 million with a company who allegedly retaliated against a whistleblower.  “The Commission’s action sends a strong message to employers that retaliation against whistleblowers in any form is unacceptable,” McKessy said.

Consistent over the last three years, the most common allegations were corporate disclosures and financials (17%), offering fraud (16%), and manipulation (15%).

Whistleblower Profile

In an effort to be more transparent, the SEC provided slightly more details than in previous years on the profile of whistleblowers, while still maintaining confidentiality as required under the Dodd-Frank Act.

“Among many of the complaints the SEC received, for example, “the information provided by each award recipient was specific, in that the whistleblower identified particular individuals involved in the fraud, or pointed to specific documents that substantiated their allegations or explained where such documents could be located,” the SEC stated. “In some instances, the whistleblower identified specific financial transactions that evidenced the fraud.”

Several of the individuals who have received awards to date were company insiders; more than 40 percent of whistleblowers who received awards were current or former employees. An additional 20 percent of the whistleblowers were contractors, consultants, or were solicited to act as consultants for the company that committed the securities violation.

Of the whistleblowers who were current or former employees, over 80 percent raised their concerns internally to their supervisors or compliance personnel before reporting the wrongdoing to the SEC. The broader lesson is that companies “not only need to have internal reporting mechanisms in place, but they must act upon credible allegations of potential wrongdoing when voiced by their employees,” McKessy stated in the report.

The SEC received tips through other channels as well. “The remaining award recipients obtained their information because they were investors who had been victims of the fraud, or were professionals working in the same or similar industry, or had a personal relationship with one of the defendants,” the SEC stated.

Geographic Scope

During Fiscal Year 2014, the Commission received whistleblower submissions from individuals in all fifty states, as well as from the District of Columbia and the U.S. territory of Puerto Rico.

Within the United States, the majority of complaints, by far, came from California, at 556 complaints. The second highest number of complaints (264) came from Florida, followed by Texas and New York, with 208 and 204 complaints, respectively.

“It’s important for multi-national corporations to be aware that this is far from an exclusively U.S. issue,” John Warren, senior associate of law firm Freshfields, said. “The SEC has an ever-expanding geographic reach, with tips received from 60 different countries.”

Outside the United States, the bulk of whistleblower tips came from the United Kingdom (70), India (69), and Canada (58). The fourth and fifth highest number of tips was received from whistleblowers in the People’s Republic of China (32) and Australia (29).

Clearly, the SEC has indicated that the whistleblower program continues to be a high priority for the agency. Companies should revamp their anti-retaliation programs accordingly to avoid a whistleblower enforcement action.

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