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2020 to date brings record number of SEC Whistleblower Awards | Causes, Not Just Cases®

by: Rebecca M. Katz

While the rest of the country has seemingly slowed down due to the COVID-19 pandemic, the Securities and Exchange Commission’s Office of the Whistleblower (OWB) has not slowed down. Since the beginning of this year, the OWB has issued approximately $64 million in whistleblower awards to 12 whistleblowers who reported information to the SEC that either caused it to open an investigation or substantially assisted in an ongoing investigation. Two of these awards are among the 10 largest awards that the SEC has given out since the inception of its Whistleblower Program in 2010. So far, 2020 is on track to be the year that sees the largest awards given out.

Many have questioned what accounts for the noticeable rise in the volume of awards coming out of the OWB this year. As is the norm under the Whistleblower Program, these cases take years before an award is announced. Thus, these award applications have likely been in process long before COVID-19, and the recent awards have been pending for several years or more. It has recently been reported that the Commission has hired more staff and are putting additional resources into clearing up the bottleneck of whistleblower award applications that have overwhelmed the program. Few could have anticipated the volume of successful tips that would be received. All of this simply points to the unmitigated success of the SEC’s Whistleblower Program.

Moreover, despite the necessary redactions to conceal the identity of whistleblowers, a close examination of the Orders determining these awards provides extremely useful information concerning how the SEC determines the size of an award and what factors it considers important in awarding whistleblowers.

2020 orders determining whistleblower award claims

Jan. 22, 2020 - the SEC awarded a whistleblower more than $277,000

The award was based on a covered SEC action, and a related criminal action by the Department of Justice through a U.S. Attorney’s Office, for which the whistleblower also provided the same information that was provided to the SEC. The SEC makes clear in this award order that penalties or fines that are distributed to injured investors are to count towards the “collected monetary sanctions” upon which an award can be based. See Securities Exchange Act of 1934 Release No. 88015 (hereafter “Exchange Act Release”).

On the same day, in an unrelated matter, a whistleblower was awarded $45,000. Interestingly, this amount seems to be extremely low as a SEC action must obtain fines and/or penalties of more than $1 million, and a whistleblower will receive 10 to 30% of such monetary sanctions. Here, however, while the defendants in the SEC’s action were found to be liable for more than $1 million in disgorgement and prejudgment interest, the SEC waived all but a portion of the amount due based on the defendants’ demonstrated inability to pay. Thus, while the whistleblower’s award was based on the full amount of monetary sanctions, and the $1 million threshold was met, the whistleblower could only obtain an award on the amount that was actually “collected,” resulting in a small award. See Exchange Act Section 21F(a)(1). See Exchange Act Release No. 88014.

This Order is also noteworthy due to the fact that the whistleblower initially reported the misconduct to a state Attorney General, instead of the SEC. This brought Exchange Act Rule 21F-4(b)(7) into play, the “120-day safe harbor,” which states, in part, that “[i]f you provide information to … [certain designated persons or agencies, including a state Attorney General]…, and you, within 120 days, submit the same information to the Commission…, for purposes of evaluating your claim to an award…, the Commission will consider that you provided [the] information as of the date of your original disclosure, report or submission to one of these other authorities or persons.”

Feb. 28, 2020 - the SEC awarded the whistleblower more than $7 million.

The whistleblower in this action seemed to be an “ideal” whistleblower, with the SEC positively assessing all of the assistance the whistleblower provided to the SEC’s staff, noting that, “[c]laimant provided Enforcement staff with extensive and ongoing assistance during the course of the investigation, including identifying witnesses and helping staff understand complex fact patterns and issues related to the matters under investigation.” Moreover, the SEC used the whistleblower’s information “to devise an investigative plan and to craft its initial document requests.” Finally, the Order recognized the whistleblower’s “persistent efforts to remedy the issues, while suffering hardships.” Based on the language in the Order, it is likely that this whistleblower received an award based on the highest percentage, or close to that, permitted in the statute, or 30% of the monetary sanctions collected by the SEC. See Exchange Act Release No. 88299.

March 23, 2020 - the SEC awarded the whistleblower more than $1.6 million.

In making the award, among the factors cited by the SEC were the facts that “[c]laimant’s original information caused staff in the Division of Enforcement to open the investigation and supported some of the charges in the Covered Action,” and that “the allegations reported by Claimant would have been hard to detect.” The SEC also noted that other charges in the action were unrelated to the whistleblower’s tip and that the whistleblower “unreasonably delayed in reporting to the Commission.” With respect to the delay, however, the SEC did not apply this factor as severely as it might have, given that the delay occurred prior to the establishment of the Whistleblower Program and before the whistleblower protections were in place. See Exchange Act Release No. 88449.

March 24, 2020 - the SEC awarded two whistleblowers combined awards of more than $570,000,

One whistleblower received approximately $478,000, and the other getting approximately $94,000. Notably, the first whistleblower received an award in both the SEC’s covered action and in a related action, as the information provided to both the SEC and the other agency led to successful enforcement actions by both agencies. The second whistleblower did not receive an award in connection with the related action because the information submitted was not useful to that action.

Regarding the first whistleblower, the SEC gave positive assessments to the award criteria, including the facts that the whistleblower “reported significant information to the Commission,” “provided assistance to the staff in the form of an in-person interview early in the investigation,” and “played a critical role in helping the staff develop their case.” In addition, the whistleblower’s information assisted the SEC in bringing charges related to an ongoing fraud. In contrast, the second whistleblower’s information, while important, only contributed to charges against one of the defendants and was not used by the related agency. For these reasons, the SEC stated that the first whistleblower should receive a “substantially higher award percentage” because the information was “significantly more important” than the second whistleblower’s information. See Exchange Act Release No. 88462.

March 30, 2020 - the SEC awarded $450,000 to a whistleblower

The whistleblower became aware of the securities violations due to the fact that he or she was employed by the defendant company and had compliance-related job responsibilities. Pursuant to Exchange Act Rule 21F-4(b)(4)(iii)(B), the whistleblower would ordinarily not be eligible for an award in such circumstances. The SEC, however, found that the whistleblower was entitled to an exception to the rule because the whistleblower first reported the information to his or her supervisor, and then waited more than 120 days to report the same information to the SEC –the 120-day safe harbor. Moreover, while the whistleblower’s information did not cause the SEC to open the investigation, it “was significant in that it refocused the investigation on the violations that were ultimately charged.” See Exchange Act Release No. 88507.

April 3, 2020 -  the SEC awarded a whistleblower approximately $2 million.

In a related press release, Jane Norberg, Chief of the OWB stated that, “[t]he whistleblower’s actions in this matter were extraordinary,” and that the whistleblower “expeditiously reported the information to the Commission and provided valuable assistance despite implied threats from the wrongdoers.” In granting the award, which was likely on the high end of the award spectrum, i.e., at or near 30% of the monetary sanctions collected by the SEC, the order noted that the whistleblower “provided significant new information during the course of an ongoing investigation that would have been difficult to obtain in the absence of Claimant’s tip,” and “suffered hardships as a result of the Claimants whistleblowing.” In addition, the SEC’s law-enforcement interests in bringing the action were high. See Exchange Act Release No. 88547.

April 16, 2020 - the SEC awarded more than $27 million to a whistleblower 

The highest award given out by the SEC this year, and among the top ten highest given out by the Whistleblower Program since its inception. In reaching its determination, the SEC positively assessed numerous facts, including: the whistleblower’s information “was significant as it allowed the staff to uncover hidden conduct occurring, in part, overseas;” the whistleblower “provided a substantial amount of ongoing assistance and cooperation by meeting with staff numerous times and providing relevant documents and critical investigative leads;” and that the whistleblower “repeatedly and strenuously raised [his or her] concerns internally.”

While the SEC indicated that the whistleblower delayed bringing the information to its attention, it determined that it would not reduce the award percentage due to the strength of the positive factors and that the whistleblower tenaciously attempted to get the defendant to address his or her concerns regarding the misconduct. Again, based on the order, it is likely that the award is at the higher end of the award percentage range. See Exchange Act Release No. 88658.

April 20, 2020 - the SEC issued a $5 million award to a whistleblower

This was the seventh award the SEC had issued to whistleblowers during the prior 30-day period. In making the award, the SEC noted that the whistleblower’s tip “prompted staff in the Commission’s Office of Compliance Inspections and Examinations to open an examination into the alleged violations which were subsequently referred to staff in the Division of Enforcement.” In addition, the whistleblower provided a critical document to the staff and reported the information to the SEC as soon as he or she learned of it. Finally, whistleblower retaliation took place, as the whistleblower was terminated by the defendant soon after reporting his or her concerns to a supervisor regarding the conduct in question. See Exchange Act Release No. 88689.

April 28, 2020 -  the SEC awarded more than $18 million to a whistleblower 

The award is among the top 10 highest given out by the Whistleblower Program. Like the April 20, 2020 award, the whistleblower’s information “prompted an examination by staff in the Commission’s Office of Compliance Inspections and Examinations.” Moreover, in the order, the SEC noted the significant law enforcement interests in the matter as the covered action “resulted in millions of dollars being returned to retail investors.” In addition, the whistleblower suffered hardships due to reporting the alleged misconduct internally multiple times. As stated by Jane Norberg in a related press release, “[t]his whistleblower stepped forward and helped the agency better protect Main Street investors.” See Exchange Act Release No. 88759.

May 4, 2020 - the SEC awarded a whistleblower nearly $2 million

In reaching its determination, the SEC noted that, although the whistleblower’s tip did not lead to opening an investigation, the whistleblower provided new information regarding an ongoing fraud, which caused the staff to expeditiously seek a temporary restraining order and asset freeze to prevent further losses to investors. In addition, the whistleblower’s information and significant ongoing assistance to the staff was a large factor in investors recovering much of their investments. See Exchange Act Release No. 88803.

The pattern I see here is that the more successful whistleblowers had similar characteristics that were rewarded by the SEC, including:

  • Providing timely and significant information;
  • Providing extensive and ongoing assistance to the staff, if requested;
  • Reporting internally and attempt to remedy the issues, and
  • Suffering hardship as a result.

It will be exciting to see what other awards the SEC will be making throughout the rest of the year.

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