The SEC Whistleblower Program’s First Decade: $1 Billion in Awards and Counting

The National Law Journal

December 2, 2021

By Gary L. Azorsky and Raymond M. Sarola:

In its 10-year existence the SEC’s whistleblower program has recovered nearly $5 billion in actions that were initiated or assisted by whistleblower tips and paid over $1 billion in awards to those whistleblowers.

In its 2021 annual report to Congress on its whistleblower program, the Securities and Exchange Commission proudly touted its continuing success in encouraging and rewarding individuals for blowing the whistle on financial fraud. In its 10-year existence the SEC’s whistleblower program has recovered nearly $5 billion in actions that were initiated or assisted by whistleblower tips and paid over $1 billion in awards to those whistleblowers.

More than half of total whistleblower payments—over $500 million—were awarded last fiscal year alone, which is one of several trends indicating that the role of whistleblowers in securities law enforcement will continue to increase in the years to come.

It is clearer than ever that individuals who have knowledge of securities law violations should consult with a whistleblower attorney about participating in the SEC’s whistleblower program. This year’s report shows that the SEC values tips from any whistleblower who has useful knowledge to assist in an investigation, regardless of whether they are an “insider” and are eager for assistance in new and emerging fields, such as cryptocurrencies.

The Headline Facts of 2021: More Tips and More Awards

In its 2021 fiscal year, the SEC received over 12,200 whistleblower tips. This figure not only continued but accelerated an upward-sloping trend. From 2012 to 2020, the number of tips increased steadily from approximately 3,000 to 7,000 per year. This number jumped by over 5,000 tips last year, a 76% increase from 2020, which was previously the year with the largest number of tips.

Remarkably, the amount of whistleblower award payments made by the SEC in 2021 reflected an even bigger increase from prior years. The SEC awarded $564 million to 108 individuals in 2021. Both figures were not only the highest annual numbers but were larger than the $562 million that the SEC awarded to 106 individuals in the nine prior years of the program combined. The SEC made its two largest whistleblower awards in 2021, a payment of over $114 million to a single whistleblower and a payment of nearly $114 million to a pair of whistleblowers.

Trends and Implications: Continued Growth, New Case Types, and Faster Payments

The dramatic year-over-year growth in the number of whistleblower tips received suggests a trend that is likely to continue. While the underlying drivers of this growth are numerous, a few possibilities stand out. The turbulence in the labor market caused by the COVID pandemic has led many people to leave their jobs. Reporting fraud against a prior employer, versus a current employer, may appear to present fewer risks. Even those who remained in their jobs but transitioned to remote work may feel less of an emotional bond with their company or be better positioned to objectively evaluate its conduct. And the success of the SEC’s whistleblower program may be self-reinforcing as more people hear about the program and the increasingly large awards that whistleblowers receive.

The SEC closely guards the identity of whistleblowers, who can submit claims anonymously if they are represented by counsel, but the 2021 report included aggregated statistics concerning successful whistleblower claims that highlight important trends. For example, while most successful whistleblowers were current or former employee “insiders,” approximately 40% were not. Similarly, a majority of successful whistleblower tips caused the SEC to open a new investigation, but approximately 44% provided useful information regarding an existing investigation. Taken together, these facts show that the SEC values and will reward whistleblowers who provide substantial contributions to SEC enforcement actions, even if the information they provide was generated from their own analysis of publicly available data or related to a company that was already under investigation.

The large volume of tips in 2021 encompassed a wide range of securities law violations. The most frequent type of whistleblower tip alleged some form of “manipulation,” and other common topics were corporate disclosure and offering frauds, and trading violations. Notably, the fifth-most common topic included initial coin offerings and cryptocurrencies, for which the SEC received over 750 tips. Whistleblowers can be extremely helpful to the SEC in uncovering and prosecuting new types of securities fraud, as further illustrated by the SEC’s recent enforcement action against a special purpose acquisition company that was the subject of a whistleblower tip. (SPACs are newly popular investment vehicles in which a shell company raises money in a public offering to buy or merge with a private company and thereby take it public.)

Lastly, the report emphasized the administrative improvements that the whistleblower program has implemented to more efficiently handle and resolve whistleblower claims. As a result of recent amendments to the regulations covering the whistleblower program, the SEC now applies a presumption that whistleblower awards of $5 million or less will be granted the statutory maximum award percentage of 30% of the SEC’s monetary proceeds. The recent amendments also permit the SEC to use a summary disposition process to quickly deny frivolous claims. These program improvements contributed to the SEC processing 354 whistleblower claims in 2021, the largest annual figure in its history.

Conclusion: Whistleblowers Play a Valuable Role in Securities Law Enforcement

It is undeniable that whistleblowers play a unique and valuable role in assisting the SEC in protecting our capital markets and prosecuting companies and individuals that violate the federal securities laws. The most recent statistics from the SEC whistleblower program show a clear trend towards greater participation from whistleblowers and awards that are more frequent and larger in size than ever before.

Gary L. Azorsky is a partner at Cohen Milstein Sellers & Toll in Philadelphia, and co-chair of the firm’s Whistleblower/False Claims Act practice.  Raymond M. Sarola is of counsel with the firm in the Whistleblower/False Claims Act practice.

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