Jane Norberg, the SEC's whistleblower chief. Credit: Diego M. Radzinschi

A year after pushing total bounties past the $100 million mark, the U.S. Securities and Exchange Commission's whistleblower program forged ahead in the fiscal year ending Sept. 30 with nearly $50 million in awards to 12 tipsters, bringing the total number of recipients to 46.

Among those whistleblowers, according to the agency's annual report to Congress, was a company insider who received $5.5 million for setting off an investigation that would shut down a scheme that targeted what the SEC described as a “vulnerable investor community.” Another whistleblower received more than $20 million—the third highest award in the program's nearly seven-year history—for helping regulators bring an enforcement action against wrongdoers before they could squander their ill-gotten gains.

But the SEC's efforts for whistleblowers went beyond bounties.

The SEC sought to protect tipsters and preserve clear lines of communication with regulators with a $500,000 fine of the financial services company HomeStreet in the latest settlement over severance agreements that require employees to waive their rights to whistleblower awards. And in the courts, the SEC defended its view that the Dodd-Frank Act's anti-retaliation protections extend not only to whistleblowers who come “to the commission,” as the statute states, but also those who only flag issues internally. With the U.S. Supreme Court set to review the scope of whistleblower protections, U.S. Solicitor General Noel Francisco filed an amicus brief last month supporting the SEC's interpretation.

“Put simply, if individuals are not assured they will be protected from retaliation if they report internally, they will be less likely to report internally, which could undermine the important role that internal compliance programs play in helping the commission prevent, detect, and stop securities law violations,” the SEC whistleblower office said in its annual report.

Here's a deeper look, by the numbers, into the SEC whistleblower program's past and the awards that could be coming.

$671 million

Former SEC Chairwoman Mary Jo White, now the senior chair of Debevoise & Plimpton, once described the whistleblower program as a “game changer.” Indeed, whistleblower information has helped the commission's enforcers order wrongdoers to pay nearly $1 billion in monetary sanctions. But supporters of the SEC's whistleblower office often prefer to highlight a lower—albeit still large—figure: Of the $975 million in sanctions, about $671 million came in the form of disgorgement of ill-gotten gains.

“That's an eye-opening figure,” said Sean McKessy, the first chief of the SEC program, who is now a partner at the whistleblower firm Phillips & Cohen. “That's real money that's back in people's pockets because of the whistleblower program.”

$221 million

Every year, the SEC whistleblower office's report to Congress provides a comprehensive review of the recent awards and notable steps to protect tipsters. It was another document, the agency's annual financial report, that provided a telling figure about the program's future.

In that report, the SEC estimated that $221 million in future whistleblower payments are “probable.” The agency gave no timetable for doling out that estimated amount, which it identified as a “contingent liability.” At the same time last year, the SEC identified a contingent liability of $10.8 million for future whistleblower awards.

Choate partner Greg Keating, chairman of the firm's whistleblower defense practice group, said the estimate shows the SEC program has hit “full stride.”

“The fact that they have, to date, issued [about $160 million] since the program began—$50 million in the last year alone—and set aside $221 million for whistleblower awards that are probable to be doled out is suggestive of an agency that is in full stride and a funnel that is full,” he said. “Investigations are now rounding the bend. We're likely to hear more and more from the SEC in coming months.”

4,400

Between October 2016 and September 2017, the SEC received more than 4,400 tips—a 50 percent increase from the 3,000 tips received in the fiscal year that ended September 2012. The tips have streamed in not just from across the United States—namely California, New York, Texas, Florida and New Jersey—but also from 114 countries. In recent years, tips arrived from 72 countries, with the highest number coming from the United Kingdom, Canada and Australia.

SInce August 2011, the SEC has received more than 22,000 whistleblower tips.

Whistleblower firms are increasingly viewing the United Kingdom as fertile ground for tips that could reap rewards in the United States, either under SEC's program or the False Claims Act.

However, with the United Kingdom set to depart from the European Union, some firms are re-evaluating. “There's some suggestion that companies are relocating and Brexit is going to cause some displacement,” McKessy said. “We want to focus on, if London is going to be its own entity, what other countries might assume the mantle as Europe's financial center and focus our efforts on finding other countries that might assume the mantle.”

62

Of the 46 whistleblowers who've received awards thus far, 62 percent were current or former insiders of the company they reported to the SEC. And of those insiders, 83 percent reported internally before contacting the federal regulator—a statistic the program's supporters have held out to rebut the notion that the SEC's whistleblower program undercuts companies' compliance systems.

“So that's a pretty good stat as far as internal reporting goes,” said Jane Norberg, chief of the SEC whistleblower program, at the SEC Enforcement Forum in Washington last month.

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After seeing federal appeals court split over its broad view of anti-retaliation protections, the SEC whistleblower office will be closely watching one Supreme Court case this term. The high court is reviewing the Ninth Circuit's decision in Digital Realty Trust v. Somers, in which a divided panel of the appeals court backed the SEC's position that corporate insiders need not bring tips “to the commission” in order to receive whistleblower protections.

Norberg has questioned the wisdom of the industry challenges. If the industry side wins, she said, whistleblowers will be more incentivized to come to the agency rather than go through the internal process.

“The ironic part of all of this is that some of the same companies that commented during the rulemaking process about requiring internal reporting or incentivizing internal reporting are some of the very same companies who are in court now challenging an employee's right to bring a whistleblower retaliation lawsuit for reporting the information internally,” Norberg said in June. “So, in my view, this is a little bit of a thorny issue and a case of 'be careful of what you wish for.'”

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