Office of Whistleblower Annual Report (Version 2014); More of the Same or Progress on Dodd-Frank Objectives?

The SEC released its Fiscal Year 2014 Annual Report (the “Report”) to Congress on the Dodd-Frank Whistleblower Program on November 18, 2014. The Report analyzes the tips received over the last twelve months by the SEC’s Office of the Whistleblower (“OWB”), provides additional information about the whistleblower awards to date, and discusses the Office’s efforts to combat retaliation against whistleblowers.

Breakdown of Tips Received in FY 2014

The OWB received whistleblower tips and complaints from all 50 states, the District of Columbia, and Puerto Rico. Domestically, the largest number of whistleblower complaints and tips were from California (556), Florida (268), Texas (208), and New York (204). Additionally, the OWB received whistleblower tips from individuals located in 60 foreign countries. Of these, the countries from which the most numbers of tips originated were the United Kingdom (70), India (69), Canada (58), the People’s Republic of China (32), and Australia (29) with Argentina, Curacao, Germany, Malaysia, and Russia being other countries from which the SEC received more than 10 tips.

The OWB reported a modest increase in the number of whistleblower tips and complaints that it received in 2014 – 3,620 tips in 2014 compared to 3,238 tips in 2013 and 3,001 tips in 2012. Overall, the 2014 whistleblower tips were similar in number and type of whistleblower tips reported in 2013. As in 2013, the most common types of allegations in 2014 were: Corporate Disclosure and Financials (16.9%), Offering Fraud (16%), and Manipulation (15.5%). Most whistleblowers, however, selected “Other” when asked to describe their allegations.

2014 Whistleblower Awards

The SEC issued nine whistleblower awards in FY 2014, including one award for over $30 million. That award was, by far, the largest SEC whistleblower award to date, and it was the fourth award (out of fourteen in total since the inception of the program) to a whistleblower living in a foreign country. The OWB reported that two of the whistleblower awards were made to individuals who reported concerns internally to company personnel before submitting reports to the Commission, including one company employee who had audit and compliance responsibilities for the company. In addition to new awards, several award recipients from prior years received additional payments in FY 2014 as the Commission recovered additional amounts in covered or related actions. For example, the SEC’s first award recipient who initially received $50,000 has now received a total of over $385,000.

The OWB report provides some additional information about the whistleblowers who received awards on an aggregate basis. Over 40% of award recipients were current or former company employees, while another 20% were contractors, consultants, or were solicited to act as consultants for the company committing the violation. The remaining award recipients obtained their information because they were investors who had been victims of the fraud, were professionals working in the same or similar industry, or had a personal relationship with one of the defendants. Of the award recipients who were current or former employees, the report states that over 80% raised their concerns internally before making reports to the Commission.

Only one award recipient to date submitted his or her information anonymously. A majority of award recipients were not represented by counsel when they submitted their tip to the SEC; however, a majority were represented by the time they applied for an award.

Retaliation and Confidentiality Agreements

OWB has been identifying and monitoring whistleblower complaints alleging retaliation against employees in response to raising concerns of securities law violations, and in June 2014, the Commission brought its first anti-retaliation case, charging a hedge fund with retaliation against its head trader. That case settled for $2.2 million, which resolved both retaliation charge as well as the charges of underlying securities law violations.

In addition, OWB has been working to identify employee confidentiality, severance, and other types of agreements that may interfere with an employee’s ability to report potential wrongdoing to the SEC. The report states, “We will continue to focus on agreements that attempt to silence employees from reporting securities violations to the Commission by threatening liability or other kinds of punishment.”

Finally, the OWB has filed amicus curiae briefs in several cases in FY 2014 to urge courts to hold, in deference to the SEC’s rule, that individuals are entitled to employment retaliation protection if they report information about a possible securities law violation internally at a company, regardless of whether they have separately reported the information to the SEC.