The U.S. Securities and Exchange Commission (SEC) held its annual SEC Speaks program in Washington, D.C. on February 24-25, 2012, and the event left no doubt that the SEC is striving to become more nimble and aggressive in pursuing those it perceives to have violated the federal securities laws. Both commissioners and senior staff lauded the results of the SEC’s new emphasis on using information obtained from corporate whistleblowers, expanding enforcement liability of both companies and “gatekeepers” (such as attorneys and accountants) under negligence or recklessness-based theories, and utilizing risk-based and data mining approaches to more quickly identify potentially illegal behavior. In her keynote address, Chairman Mary Schapiro cited these and other initiatives as driving the record 735 enforcement actions brought by the SEC in fiscal 2011, and the $2.8 billion in disgorgement and penalties ordered. Clearly, the Commission and its Division of Enforcement are emerging from such world-changing events as the financial crisis and the Madoff scandal as a newly revamped and powerful force in the financial markets, seeking to use every resource to fulfill the SEC’s core mission of protecting investors.

Corporate Whistleblowers and Credit for Cooperation

Sean McKessy, Chief of the SEC’s new Whistleblower Office, discussed the progress of the whistleblower program that was mandated by the 2010 Dodd- Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Dodd-Frank directed the SEC to pay monetary awards of between 10 and 30 percent of monetary sanctions collected to eligible individuals who voluntarily provide original information that leads to successful enforcement actions resulting in the imposition of sanctions over $1 million. The Whistleblower Office is now staffed with eight employees, and McKessy reported that the staff has returned over 2,000 calls that have been placed to the whistleblower hotline since the hotline was established in May 2011. In its fiscal 2011 report to Congress, the Whistleblower Office reported that from August 2011, when the SEC adopted its final program rules, through the end of the fiscal year (ending September 30), the office received 334 whistleblower tips. In addition, the investor protection fund – established by the SEC to compensate successful whistleblowers – is currently funded to the tune of almost $453 million.