Dive Brief:
- More whistleblowers — 12,300 — reached out to the Securities and Exchange Commission (SEC) in the fiscal year that just ended than in any previous year, the agency says.
- That makes company insiders and others who speak out an enforcement engine for the government, which created the program after passage of the 2010 Dodd-Frank Act and has since awarded more than $1.3 billion to 328 people. This past fiscal year it awarded $229 million to 103 people, second highest in both dollar amount and number of people.
- “The program … is effectively incentivizing whistleblowers to make the often difficult decision to come forward with information about potential securities-law violations,” Creola Kelly, the SEC’s whistleblower program chief, said in the program’s fiscal year 2022 report, released a few weeks ago.
Dive Insight:
The program’s effectiveness stems from the SEC’s effort to protect the confidentiality of people who come forward and its ability to go after companies that try to discourage employees from participating.
“The Commission vigorously safeguards their identity while rewarding eligible individuals who identify bad actors in our markets,” Kelly said.
This year the SEC penalized The Brink's Company for not including a whistleblower exemption in non-disclosure agreements it makes some employees sign and it penalized a technology company for retaliating against an employee who raised concerns that it was overstating the size of its user base.
“The company’s co-founder and his supervisor took steps to remove the employee’s access to company IT systems while making it appear it was done in error,” the SEC says.
Most of the tips to the SEC this past fiscal year were for efforts to manipulate the price or volume of company securities. Almost 2,560 tips were for that, significantly higher than for anything else.
The other big ones were for fraudulent offerings, including those involving coins or crypto, and not being forthright on disclosures and financials. A few hundred accusations were for insider trading.
For people who come forward the money can be substantial — $32 million to one person, $17 million to another. As part of its effort to protect people’s confidentiality, the SEC doesn’t disclose the name of the company or the nature of the enforcement action when it announces an award.
That kind of opacity doesn’t sit well with everyone.
“The Whistleblower Program has come under increasing scrutiny from some on the basis that it operates with a lack of transparency,” one of the SEC’s own commissioners, Mark Uyeda, has said, Bloomberg Law reported. “These concerns are understandable, given that the Whistleblower Program has paid out more than $1.1 billion in awards since inception from funds that would have otherwise benefited taxpayers.”
Uyeda, appointed by President Biden in June, has suggested the program be administered more transparently.
“To the extent that the Commission seeks to improve the Whistleblower Program and its rules, it should perhaps consider promoting greater visibility into its claims and award determinations,” Uyeda said.
The program had a balance of $306.4 million at the end of the fiscal year.
