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SEC whistleblower program has a blockbuster year

The US Securities and Exchange Commission whistleblower program had a record-breaking year in a number of ways, according to the SEC’s recently released 2021 Annual Report to Congress on the whistleblower program.

First, the SEC broke its previous record for the total yearly amount awarded to whistleblowers, awarding a record $564 million in awards to whistleblowers over the fiscal year, which ran from from Oct.1, 2020 to Sept. 30.

Second, the SEC made awards to 108 whistleblowers, the largest number of whistleblowers given awards in a year. In fact, this was more than the total number of whistleblowers given awards in all previous years combined (106 whistleblowers).

Third, the SEC made its two largest-ever whistleblower awards in fiscal year 2021. One award of $114 million was made to a single whistleblower in October 2020, and a whistleblower award of $110 million was made in another case in September.

Fourth, the SEC received the largest number of whistleblower tips in a single year thus far. The SEC received over 12,200 whistleblower tips in fiscal year 2021, an astounding 76% increase from the previous year. Tips came from all over the world, as individuals from 99 foreign countries submitted tips to the SEC.

The SEC whistleblower program, created by Congress in 2010 as part of the Dodd-Frank Act, provides a way for whistleblowers to report suspected violations of securities laws. If the SEC investigates the allegations and recoups sanctions in an enforcement action, the whistleblower may receive a percentage of the recovery as an award under the program’s rules.

The program has been very successful, with almost $5 billion collected in monetary sanctions from enforcement actions that used whistleblowers’ information. Additionally, investors who lost money or were otherwise harmed by the violations have received or are due to receive over $1.3 billion of that amount.

The SEC program also protects whistleblowers against retaliation for reporting violations to the SEC. In fiscal year 2021, the SEC brought two enforcement actions that alleged employers had violated the SEC’s rules on whistleblower protections.

The success of the program over the past year may be due in part to new amendments to the SEC rules that made the award determination process faster, easier and more efficient. In September 2020, the SEC adopted changes to the rules, including one that allows the SEC to award whistleblowers the maximum percentage of 30% in cases where the SEC had collected under $5 million in sanctions and the whistleblower met certain requirements.

Because the majority of whistleblower cases fall into that category, applying that presumption may have allowed the SEC to pay out awards faster to whistleblowers while using less administrative resources and time to process awards. The annual report notes that this presumption had a “significant impact” on the whistleblower program.

The annual report also revealed the kinds of fraud most commonly reported to the program. Those were: manipulation (25% of complaints), corporate disclosures and financial accounting failures (16%), offering fraud (16%), problematic trading and pricing practices (6%), and initial coin offerings and cryptocurrency fraud (6%).

The success of the program and its commitment to whistleblowers should reassure anyone who is considering whether to report securities fraud through the SEC’s whistleblower program. For a free, confidential review of your matter by experienced SEC whistleblower lawyers, contact Phillips & Cohen.

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