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SEC Whistleblower Office Reports

The SEC office of the Whistleblower has just provided its annual report. Legal intelligence quoted the report and noted the “Dramatic increase” in whistleblower awards and the amount of such awards.

The headline is probably the result of letter in the report from Sean X. McKessy the Chief of the Office.  The Chief uses the term “historic” in his report (pdf):

Fiscal Year 2014 was historic for the Office in terms of both the number and dollar amount of whistleblower awards. The Commission issued whistleblower awards to more individuals in Fiscal Year 2014 than in all previous years combined. Since the inception of the whistleblower program, the Commission has authorized awards to fourteen whistleblowers. The SEC authorized awards to nine of these whistleblowers in Fiscal Year 2014. Each of these whistleblowers provided original information that led or significantly contributed to a successful enforcement action.

You may not think of nine awards as “historic,” but you have to keep this in historical context.  The office was created by the Dodd-Frank Act, which may seem like old news to you but it was only passed in 2010.  In terms of prosecuting securities violations, though, that makes the Office of the Whistleblower a start-up. It will take years for the tips the office is currently receiving to bear fruit in the form of successful litigation and whistleblower awards. Therefore, you may get the wrong idea if you only look at part of Mr. McKessy’s message or the report.

The number that I would be touting from the SEC is 3,620. According to the report 3,620 whistleblower tips arrived at the office of the whistleblower and that number is up some 20% from the previous year. As many more cases are reported to the SEC and the SEC investigates and takes action, the amounts awarded and the number of awards will not only continue to be “historic,” but also become very large indeed.

The thing to keep in mind is that the SEC is getting more tips and those tips are going to snowball into more results. One reason for all the Tips is the SEC’s very public stance in support of whistleblowers.  You may think this is a no brainer. You may think it is obvious that the office of the whistleblower would support whistleblowers and protect whistleblowers.  I’m here to say that whistleblowers always have it tough and we have to take any support we can get.  So it is extremely gratifying to read this from the Chief:

The SEC also filed amicus curiae briefs in several private cases pending in the federal courts to address the scope of the anti-retaliation employment protections established by the Dodd-Frank Act. The Commission argued that the anti-retaliation protections should not be interpreted narrowly to reach only individuals who make disclosures directly to the Commission. Rather, the employment protections should be understood to protect individuals at publicly-traded companies from employment retaliation.

The SEC does not really have to file such amicus or friend of the court briefs in support of whistleblowers.  If a whistleblower collects money as a result of a retaliation claim in court, the SEC does not directly collect anything from that individual action. However, their willingness to take the step of supporting the whistleblowers in such proceedings shows they are serious about encouraging reporting by individuals with knowledge of securities violations and places the agency right where it should be on the side of the whistleblowers.

In addition, the SEC has a very good record of protecting the identity of whistleblowers who provide information needed to go after Securities law violations. They have not released the names of whistleblowers to the public even after providing major awards to those whistleblowers. The SEC regulations allow for whistleblowers to file their claims anonymously (through counsel) and the SEC has gone to great lengths to protect their identities from the public thereby shielding the whistleblowers from possible retribution.

Such support for whistleblowers is why this very young office is getting reports from people with the information they need.  Of course, they did in fact also provide an award of $30 Million last year, which is the largest award under the program to date.

As long as the office continues to act this way—to state publically their support for whistleblowers and take action, which confirms that support—they will continue to get important information.

The number of successful awards can only rise from there.