Last week, the Securities and Exchange Commission announced an award payout of between $475,000 and $575,000 to a former company officer who reported information about an alleged securities fraud. While this is by no means the largest of the 15 payouts the SEC has made since the inception of the whistleblower program in fiscal year 2012 (the SEC awarded approximately $14 million to a whistleblower in October 2013, and roughly $30 million to a foreign whistleblower almost a year later), it is the first time that the SEC provided a whistleblower bounty award under the new program to an officer who learned about the alleged fraud through another employee, rather than firsthand.
Securities and Exchange Commission leadership and staff members addressed the public on February 20-21 at the annual “SEC Speaks” conference in Washington, D.C. Common themes among the numerous presentations included the Commission’s increasing use of data analytics, the Commission’s focus on gatekeepers such as accountants and attorneys, and the Commission’s still incomplete rulemakings mandated by both the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Jumpstart Our Business Startups Act.
The SEC released its Fiscal Year 2013 Annual Report (the “Report”) to Congress on the Dodd-Frank Whistleblower Program on November 15, 2013. The Report analyzes the tips received over the last twelve months by the SEC’s Office of the Whistleblower (“OWB”) and provides additional information about the whistleblower award evaluation process.
Breakdown of Tips Received in FY 2013
The OWB reported a modest increase in the number of whistleblower tips and complaints that it received in 2013 – 3,238 tips in 2013 compared to 3,001 in 2012. Overall, the 2013 whistleblower tips were similar in number, type, and geographic source to the whistleblower tips reported in 2012. As in 2012, the most common types of allegations in 2013 were: Corporate Disclosure and Financials (17.2%), Offering Fraud (17.1%), and Manipulation (16.2%). Most whistleblowers, however, selected “Other” when asked to describe their allegations. In 2012, the most common complaint categories reported were also Corporate Disclosure and Financials (18.2%), Offering Fraud (15.5%), and Manipulation (15.2%). See Appendix B to the Report, listing tips by allegation type and comparing tips received in 2013 to those received in 2012. Read More
SEC Regional Office Director David Bergers recently emphasized the importance of a company’s whistleblower policy when deciding whether to file an enforcement action against a company. Bergers made his comments at an internal investigations panel on December 7, 2012 sponsored by the Massachusetts Lawyers Weekly. For more information about the panel, see Martha Kessler, Bergers Tells Issuers to Preserve Data Upon Learning of Possible Investigation, Bloomberg Securities Regulation & Law Report, 44 SRLR 2280 (Dec. 17, 2012).
Bergers noted that a company should show the SEC that it takes whistleblowers seriously, even if a particular whistleblower has issues that the company believes undermine his or her credibility. “We want to see that the company is taking their concerns seriously, and how they are talking about them,” Bergers said. The SEC wants to know that the company is “separating [the allegations] from whatever or whoever is making them.” The company that acknowledges that there has been a whistleblower complaint, but tells the SEC “first let us give you the employment file” may find itself at odds with the SEC’s approach to a whistleblower’s concerns. Although the SEC will consider information about the whistleblower, including material in an employment file, Bergers noted that the agency is primarily interested in what the company does with the whistleblower’s allegations and how it treats the whistleblower.
Let this serve as a reminder of the importance of a well-considered whistleblower policy in preparing for potential communications with the SEC.
On August 21, 2012, the Securities and Exchange Commission (SEC) announced that it has awarded its first whistleblower bounty, just over one year after the SEC’s Dodd-Frank whistleblower rules became effective. The SEC’s Claims Review Staff issued a short order, Release No. 34-67698, granting the whistleblower’s award, which notes that the SEC declined to award a claim to a second whistleblower involved in the action.
The SEC came under scrutiny, including from U.S. Senator Charles Grassley, following an April 25, 2012 front page article in the Wall Street Journal which reported that the Agency had inadvertently revealed the identity of a whistleblower during an inquiry into his former employer.
The investigation involved Pipeline Trading Systems LLC, which runs stock trading platforms under its new name, Aritas Securities LLC. According to the article, an SEC Staff Attorney showed a notebook belonging to the whistleblower to a Pipeline executive during an interview. The executive recognized the handwriting regarding trades, meetings, and phone calls. Pipeline settled with the SEC on October 24, 2011. Read More