Dramatic Increase in Number, Magnitude of Whistleblower Awards

Last month, the U.S. Securities and Exchange Commission’s (SEC) Office of the Whistleblower (OWB) released its 2014 annual report to Congress on the Dodd-Frank whistleblower program (found at http://goo.gl/45Rj9A). As OWB’s chief, Sean X. McKessy, states in the report, the 2014 fiscal year was “historic” for the OWB “in terms of both the number and dollar amount of whistleblower awards.” As McKessy explains, the commission issued awards to more whistleblowers (nine individuals) during 2014 than in 2011-13 combined (five individuals), and made a “record-breaking” award of $30 million to a single whistleblower in September 2014. McKessy points out that the SEC made the $30 million award to an individual living in a foreign country, “demonstrating the program’s international reach.” The 2014 OWB report itself provides detailed information regarding the number of whistleblower reports and awards made since the SEC established the OWB in 2011. Unlike OWB’s annual reports in prior years, the report also includes a “profile” of the 2014 award recipients (without disclosing their identities) and describes, in particular, two recipients who provided information to the SEC only after they reported their concerns to the appropriate personnel at their company employers and after the companies failed to take “corrective action.”

Statutory Context

In 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, which, among other things, added “Securities Whistleblower Incentives and Protection” provisions to the Securities Exchange Act of 1934. These provisions—set forth in Section 21F of the Exchange Act—offer powerful financial incentives to employees and other potential whistleblowers to report directly to the SEC suspected violations of the federal securities laws by public companies and/or their subsidiaries. The act directs the SEC to pay awards, subject to certain limitations and conditions, to any one or more whistleblowers who “voluntarily” provide the SEC with “original information” about a violation of the securities laws that leads to a “successful enforcement” action resulting in monetary sanctions exceeding $1 million. Section 21F further requires that an eligible whistleblower receive an award equal to 10 to 30 percent of the total monetary sanctions imposed in the SEC action or related actions. As required under Section 924(d) of Dodd-Frank, the SEC created the OWB as a separate office within the commission’s Enforcement Division to administer the whistleblower program. As the OWB report explains: “It is OWB’s mission to administer a vigorous whistleblower program that will help the commission identify and halt frauds early and quickly to minimize investor losses.”