The U.S. Securities and Exchange Commission (SEC) whistleblower program went into effect on July 21, 2010, when the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. The same law also established a whistleblower incentive program at the Commodity Futures Trading Commission to incentivize reporting of violations of the Commodity Exchange Act, which is run by former senior SEC enforcement attorney Christopher C. Ehrman. The SEC Whistleblower Program rewards people who submit tips related to violations of the federal securities laws. The program offers robust employment protections, monetary awards and the ability to report anonymously. SEC whistleblowers are entitled to awards ranging from 10 to 30 percent of the monetary sanctions collected, which are paid from a replenishing Investor Protection Fund. Since 2011, whistleblower tips have enabled the SEC to recover over $4.8 billion in financial penalties from wrongdoers. The SEC has awarded more than $1 billion to whistleblowers. The largest SEC whistleblower awards to date are $279 million, $114 million, $110 million, and $50 million.
Overview
While the SEC had in place a bounty program for more than 20 years to reward whistleblowers for insider trading tips and complaints, an Office of the Inspector General's 2013 report found that the SEC's old program received very few applications from individuals seeking a bounty, and there were very few payments made under the program, possibly because the program was not widely recognized. The report also determined the program was not well-designed. Following the financial crisis and the Madoff investment scandal, in July 2010, the SEC's bounty program was significantly enhanced after the President signed Dodd-Frank into law. Specifically, Section 922 of Dodd-Frank amended the Securities Exchange Act of 1934 (Exchange Act) by adding Section 21F, which created the SEC Whistleblower Program and the SEC Whistleblower Office.
Under the new whistleblower program, the SEC is authorized to make monetary awards to whistleblowers who voluntarily provide original information that leads to successful enforcement actions resulting in monetary sanctions over $1,000,000. Under the program, a whistleblower may receive an award of between 10 and 30 percent of the monetary sanctions collected.
The SEC's new whistleblower program represents a major benefit over other whistleblower reward programs that do not allow anonymous submissions, such as the IRS whistleblower program. Anonymous whistleblowers must sign a declaration in their complaint under the penalty of perjury "that the information contained herein is true, correct and complete to the best of my knowledge, information and belief." Whistleblower's attorneys are responsible for the retaining the original, signed copy of the declaration.
According to the 2017 Annual Report to Congress on the Dodd-Frank Whistleblower Program, a majority of tips received by the SEC related to corporate disclosures and financials (19 percent), offering fraud (18 percent), and manipulation (12 percent). The states that yielded the highest number of tips in Fiscal Year 2017 were California, New York, Texas, Florida, and New Jersey. The countries that yielded the highest number of tips in Fiscal Year 2017 were Canada, the United Kingdom, and Australia. Since the inception of the program, the SEC has received whistleblower tips from 114 countries.
Notable awards
Since 2011, whistleblowers' tips have enabled the SEC to recover more than $1.4 billion in financial penalties from wrongdoers. Former SEC Chair Mary Jo White called the new SEC whistleblower program a "game changer," in an April 2015 speech. "The program is a success – and we will work hard at the SEC to build on that success," she said.
Given that SEC investigations can take two to four years to complete, there were no awards made in the Program's first year of operation.
The first SEC whistleblower award was made on August 21, 2012 to a whistleblower who provided documents and information relating to an ongoing multimillion-dollar fraud. The whistleblower received $50,000, which represented 30 percent of the amount the Commission had collected at the end of the fiscal year.
Four awards were made in Fiscal Year 2013, which totaled over $14 million.
In Fiscal Year 2014, the Commission issued awards to 9 whistleblowers, with actual payouts during the year approaching $2 million. In 2014, the SEC announced an award of more than $300,000–the first to an employee in an audit or compliance function–who filed a submission with the SEC after reporting internally and the company failed to take action.