The record amount of whistleblower payouts by the Securities and Exchange Commission (SEC) in fiscal year 2020—$175 million, the most since the program issued its first award in 2012—happened because the agency made quickening the pace of awards a priority, whistleblower advocates say.
Stephen Kohn, chairman of the National Whistleblower Center and an attorney who represents whistleblowers before the SEC, cited a “tone at the top” for speeding up the award process.
“Whenever we’ve met with him, (SEC Chairman) Jay Clayton has made it clear he wants to see cases decided faster,” Kohn said. “Other chairs have been supportive, but this chair has had an interest in getting whistleblowers paid faster.”
Kohn says his firm has been working on several whistleblower award cases for more than a decade. In some instances, the assessment of the whistleblower award took longer than the investigation.
“That can be really discouraging to future whistleblowers,” he said.
Sean McKessy, a partner and whistleblower attorney at the firm Phillips & Cohen and the founding chief of the SEC’s Office of the Whistleblower under President Barack Obama, said the whistleblower office under current chief Jane Norberg has successfully streamlined the process of determining which tipsters should receive awards. The office also added “new talent” from outside of government that helped change its culture, he said.
“These changes have allowed the office to crank out these awards at a much quicker pace,” McKessy said.
One key change streamlined the vetting of whistleblowers, according to McKessy. When he led the office, his staff interviewed Division of Enforcement staff to determine the quality of information provided by a particular whistleblower. The cumbersome process admittedly took too long, he said.
Under Norberg, Division of Enforcement staff write a declaration that assesses the value, quality, and timeliness of a whistleblower’s information. Whistleblower staff then use that declaration to make a recommendation on the amount of the award, which has to be approved by the Commission.
“Cutting out the middleman there took some time, but they got it done,” McKessy said. “There were changes that needed to be made, and they’re not as easy to do in government as they are in the private sector.”
Recent rule changes that give the whistleblower office the power to dismiss claims without approval of the Commission and to block tipsters who submit more than three frivolous tips will further speed up the process, McKessy said.
The SEC also agreed to a rule change that allows the agency to approve the maximum award amount allowed by law for awards up to $5 million, which will cut down on the assessment process.
The $175 million in whistleblower payouts in fiscal year 2020 just beat out the next highest award year of $168 million in FY2018. That year was skewed by two large awards: one for $83 million to three individuals, and another for $54 million to two tipsters.
Despite the government shutdown, FY2019 was more like a normal year, with $60 million in payouts to eight individuals.
What is most eye-popping about FY2020 wasn’t just the size of the awards, but the amount: The SEC paid awards to 39 different whistleblowers, more than a third of its 106 total payouts since 2012.
The pipeline is brimming
In a Sept. 24 Webcast with the Ethics & Compliance Initiative, Norberg said the Office of the Whistleblower received 6,500 whistleblower tips in FY2020, up from 5,100 in FY2019.
She was asked what she thinks led to the uptick in tips during what she called “this unique time.”
“People are out of the office, they’re teleworking, people may have lost their jobs,” she said. “When you get that time and space away from the office, maybe people are thinking a little bit more about things that they may have seen that didn’t seem quite right. Maybe because they’re away from the office, they don’t feel that same connection to do an internal report; instead, they’re coming right to the SEC.”
There’s another reason why whistleblowers might come to the SEC first, advocates say. One of the changes to the program enacted last month was a rule that, in order to qualify for protection from retaliation, whistleblowers must report their tips in writing to the SEC. In making the new rule, the agency was reacting to a 2018 Supreme Court decision that limited retaliation protection to whistleblowers who reported their tips directly to the SEC.
“That rule has dealt a blow to internal whistleblower programs,” Kohn said.
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