Key Takeaways

• Largest year ever for whistleblower awards (nearly $600 million in total)
• Largest single whistleblower award ever ($279 million to an individual whistleblower)
• Largest year for whistleblower tip volume (over 18,000 tips submitted to the SEC)
• The SEC underscores its whistleblower protection efforts through Rule 21F-17 enforcement

On November 14, 2023, the Securities and Exchange Commission (SEC) issued its annual report on the agency’s twelve-year-old Whistleblower Program. The report shows that the SEC Whistleblower Program is firing on all cylinders.

I. 2023 saw the Largest Total Whistleblower Awards and Largest Single Whistleblower Award Ever

In fiscal year 2023, the SEC paid out nearly $600 million to 68 individual whistleblowers, the most it has ever paid out in a single year. That averages out to about $8.8 million per whistleblower – although there is significant variance in the size of whistleblower awards.

That annual total includes the largest whistleblower award in history (under any whistleblower program, not just the SEC’s program) – a $279 million bounty the SEC issued in May to an individual who provided information relevant to a Foreign Corrupt Practices Act case against Swedish telecom giant Ericsson. The SEC also paid out $104 million to be shared by seven whistleblowers in an unidentified matter (published whistleblower award orders are heavily redacted such that the names of whistleblowers and the underlying subject matter of the case are generally unknowable). That award was the agency’s fourth largest in history. Among the whistleblowers sharing the $104 million award were several foreign nationals, who stand just as eligible as U.S. citizens to receive a whistleblower award.

II. The SEC Continues to be Inundated with Tips

The SEC Whistleblower Program has not just grown in terms of net awards, 2023 saw the largest number of whistleblower tips on record with over 18,000 tips received by the agency. That is an almost 50% jump from last year and a 166% jump from 2020. That volume highlights the success of the program and its snowballing growth.

Yet volume is a double-edged sword. The SEC, like any government agency, is an agency of limited resources, and reviewing 18,000 tips is no easy task even with a motivated, well-staffed office. Given the high volume of tips, meritorious cases will inevitably be passed over. Well-prepared whistleblowers with robust evidence will have the best odds of getting picked from the haystack.

III. Market Manipulation, Fraud, and Crypto-Related Allegations are the Lion’s Share of Tips

The SEC analyzed the subject matter of the over 18,000 tips the agency received in 2023. 56% of those tips alleged market manipulation, offering fraud, or cryptocurrency-related violations. But tip volume and whistleblower success (i.e., issuance and size of an award) are not necessarily related. FCPA cases, for example, amounted to just 1.3% of tips, but as the Ericsson case and the SEC’s enforcement data shows, the SEC has enforced the FCPA very aggressively, often obtaining enormous recoveries for the government and whistleblowers alike. Meanwhile, while market manipulation was the subject of 24% of the whistleblower tips (a plurality) in 2023, only 4% of the SEC’s civil and administrative proceedings that year involved market manipulation.

IV. The SEC Highlights its Enforcement of Rule 21F-17

The SEC’s Rule 21F-17 prohibits any impediment to a potential or actual whistleblower reporting possible securities law violations to the SEC. That means, for example, that employers cannot include clauses in employment agreements barring employees from contacting the SEC to report a securities law violation – or otherwise hamstringing their ability to do so. The SEC’s annual report stressed the agency’s commitment to enforcing Rule 21F-17:

• The SEC fined D.E. Shaw & Co., L.P. $10 million because it allegedly used confidentiality agreements which did not include a carveout for reporting possible securities law violations to the SEC. Put another way, a seemingly standard confidentiality agreement without a clear exception permitting one to report potential malfeasance to the SEC may raise regulatory ire. After all, an employee could reasonably read such an agreement as a wholesale bar on whistleblowing.
• The agency found that CBRE, Inc. contravened Rule 21F-17 by requiring departing employees who wished to receive a severance payment to represent that they had not filed a complaint against CBRE with a federal agency. Such clauses would have the effect of making a severance payment contingent (or seemingly contingent) on not being an SEC whistleblower, while also potentially identifying individuals that have blown the whistle.
• The SEC found that Activision Blizzard, Inc. ran afoul of Rule 21F-17 because its separation agreements required departing employees to inform the company of any request for information he or she received from the SEC. So, under that provision, an ex-employee was permitted to act as an SEC whistleblower but was required to effectively “tip off” his or her former employer of informational requests from the SEC. Such clauses may impede whistleblowing by, for example, flagging a former employee for retaliation (e.g., refusal to provide an employment reference or rehire the employee) and suppressing an individual’s motivation to submit an SEC tip in the first place.
• Lastly, the SEC determined that Monolith Resources, LLC violated Rule 21F-17 by requiring departing employees to waive their rights to monetary whistleblower awards. Such provisions may impede whistleblowing by fundamentally altering the incentive calculus – an individual who will not stand to receive a whistleblower award will be unlikely to blow the whistle in the first place.

The SEC’s staunch enforcement of Rule 21F-17 will surely continue. Yet Rule 21F-17 also creates an incentive for individuals to blow the whistle on employment agreements that somehow encumber an employee’s rights under the SEC whistleblower program. Even an individual who knows of no disclosure fraud, market manipulation, FCPA violation, or similar “classic violation” of the securities laws can submit a tip to the SEC concerning the use of inappropriate employment clauses and apply for a whistleblower award. Employers and potential whistleblowers alike are on notice.

V. The SEC Whistleblower Program is Not Slowing Down

2023 was the SEC Whistleblower Program’s largest year by tip submission volume and amounts awarded. These are not blips on the radar though. The largest three years for tip volume and whistleblower awards were 2021, 2022, and 2023. The SEC’s Whistleblower Program has been a resounding success. The success of any whistleblower program is a positive feedback cycle. There is no better press for the program than large awards. So, more bounties yields more press, more press yields more tips, and more tips yield more awards. 2023 has been a record-breaking year for the program, but these are records that will surely be broken sooner rather than later.

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