The Whistle Keeps Blowing: SEC Whistleblower Office Releases Its 2019 Annual Report

The SEC’s Office of the Whistleblower (“OWB”) released its Fiscal Year 2019 Annual Report (the “Report”) to Congress on the Dodd-Frank Whistleblower Program on November 15, 2019. The Report analyzes the tips received over the last twelve months by the OWB, provides additional information about the whistleblower awards to date, and discusses the OWB’s efforts to combat retaliation and other actions that muzzle whistleblowers. To date, the SEC has recovered over $2 billion in total monetary sanctions from its enforcement actions arising from whistleblower tips, including more than $1 billion in disgorgement of ill-gotten gains and interests, and it has or is scheduled to return almost $500 million to harmed investors.

Breakdown of Tips Received in FY 2019

The OWB reported a minor decrease in the number of whistleblower tips and complaints that it received in 2019–5,212 tips in 2019 compared to 5,282 tips in 2018. This was the second largest number of whistleblower tips the Commission has received in a fiscal year. Overall, the most common types of allegations in 2019 were Corporate Disclosure and Financials (21%), Offering Fraud (13%), and Manipulation (10%). The SEC also added Cryptocurrency to the TCR System as an allegation type in the fourth quarter of FY2018, and almost 6% of the tips received related to this allegation.  Most whistleblowers, however, selected “Other” when asked to describe their allegations.

The OWB received whistleblower tips and complaints from 49 states (all except Wyoming), the District of Columbia, Puerto Rico, and the Virgin Islands. Domestically, the largest number of whistleblower complaints and tips were from California (546), Pennsylvania (332), New York (290), Texas (245), and Florida (241). Additionally, the OWB received whistleblower tips from individuals located in 70 foreign countries. Noticeably, there was a large drop in the number of international whistleblower tips in 2019—479 tips in 2019 compared to 651 tips in 2018—which is a roughly 26% decrease.  The countries from which the largest number of tips originated internationally were Canada (71), Germany (44), the United Kingdom (44), the People’s Republic of China (32), and Australia (28), with Brazil, Chile, Hong Kong, India, the Netherlands, Russia, and South Africa being other countries from which the SEC received more than 10 tips.

Profiles of Bounty Recipients

Overall, the SEC awarded nearly $60 million to 8 individuals in FY19, bringing the total payout under the program to approximately $387 million to 67 individuals in connection with 55 covered actions since the program’s inception. Three bounty award recipients in FY19 were located abroad or reported conduct that was occurring abroad. Three award recipients reported conduct that was affecting retail investors, “furthering a Commission priority to protect the Main Street investor.” The awards in FY19 included the SEC’s third largest award to date—a $37 million award to a whistleblower who, according to the Report, provided “significant evidence and assistance that enabled the agency to bring the matter to an efficient and successful resolution.” The Report notes that “While all awards are important to the Commission and to whistleblowers, these larger awards reflect the significance of the information that whistleblowers are providing to the Commission and are testaments to the whistleblower program’s success.”

The Report states that 69% of award recipients were current or former insiders of the company about which they reported violations. Of those, approximately 85% either raised their concerns internally first or knew that the company was otherwise aware of the issues before they reported the violations to the SEC. The award recipients who were not current or former employees obtained their information either because they were (1) victims of the fraud, (2) professionals in a related industry, or (3) had a personal relationship with the alleged wrongdoer.

Additional OWB Priorities

This year’s Report reaffirmed the OWB’s continued focus on protecting whistleblowers from retaliation and other corporate actions that could dissuade whistleblowers from communicating with the SEC. To date, the SEC has brought 11 enforcement actions or administrative proceedings for violations of Rule 21F-17, some of which we have reported on here and here.  The OWB also continues to conduct public outreach efforts to educate stakeholders about the SEC’s whistleblower program.