SEC’s Rising Whistleblower Awards Underscore the Importance of Compliance
In its continued and growing effort in cracking down on corporate corruption, the Securities and Exchange Commission (SEC) has credited whistleblowers as key to its success. And, if recent history is any indication, the agency has no plans of slowing down these efforts.
Since implementing its whistleblower program in 2011, the SEC has handed out unprecedented awards to whistleblowers who have provided information about companies that have engaged in some form of corporate wrongdoing. And in the past five years, the whistleblower program has only continued to grow, with more than $85 million paid to 32 whistleblowers.
In Fiscal Year 2015, the SEC reported that it had received nearly 4,000 whistleblower tips, a 30% increase over the number of tips received in Fiscal Year 2012
“We’re seeing a significant uptick in whistleblower tips over prior years, and we believe that’s attributable to increased public awareness of our program and the tens of millions of dollars we’ve paid to whistleblowers for information that helped us bring successful enforcement actions,” Sean X. McKessy, Chief of the SEC’s Office of the Whistleblower, said in a statement on March 8.
Companies are being closely scrutinized now more than ever before. As whistleblowers continue to help agencies such as the SEC with the effort to eradicate corruption, it’s critical that organizations ensure they are staying fully compliant. Otherwise, they risk having the whistle blown on them by individuals who may receive handsome awards from the SEC.
Awards are on the Rise
The SEC’s whistleblower program was created as a way to motivate and incentivize individuals who come forward to report possible violations of federal securities laws to the commission. Under the program, eligible whistleblowers—that is, anyone who voluntarily provides the SEC with original information about a possible violation—are entitled to an award of between 10% and 30% of the monetary sanctions the SEC collects in actions.
And the program is clearly working. With many awards already under its belt, in September 2014, the SEC issues its largest award to date—$30 million to a single whistleblower. In May 2016 alone, the agency issued a total of $26 million to five individuals. And in June, the SEC issues its second-largest-ever award of $17 million to a single whistleblower.
While it’s common for whistleblowers to be employees within the company under investigations, that’s not always the case. In January, the SEC issued its first-ever whistleblower award—to the tune of $700,000—to a third party. Because the SEC doesn’t disclose the identity of whistleblowers, it’s unclear if the individual was a vendor or other form of company outsider, but it’s important to note that the SEC welcomes tips from anyone within an organization or outside of it, including third-parties.
“This award demonstrates the Commission’s commitment to awarding those who voluntarily provide independent analysis as well as independent knowledge of securities law violations to the agency,” McKessy said in a statement in January. “We welcome analytical information from those with in-depth market knowledge and experience that may provide the springboard for an investigation.”
Getting Practical: Third-Party Programs
As the SEC has clearly stated time and time again, its efforts to eradicate corporate corruption will only increase—and whistleblowers will continue to play a key role. In fact, in Fiscal Year 2015, the SEC reported that it had received nearly 4,000 whistleblower tips, a 30% increase over the number of tips received in Fiscal Year 2012.
As more and more individuals feel empowered and incentivized to come forward when they become privy to wrongdoing, it’s more important than ever that organizations implement third-party management programs.
While the SEC’s whistleblower program has given individuals the motivation and incentive to come forward with information, these increasing number of awards by the SEC has built awareness around the program. And as a result, it’s safe to say many more will soon follow.