On June 4, the Securities and Exchange Commission (“SEC”) announced a nearly $50 million whistleblower award to an individual who provided detailed, firsthand observations of misconduct by a company, which resulted in a successful enforcement action that returned a significant amount of money to harmed investors. The SEC reported that this was the largest amount ever awarded to one individual under the SEC’s whistleblower program; the next largest is a $39 million award to an individual in 2018. Jane Norberg, Chief of the SEC’s Office of the Whistleblower, explains that the $50 million award “brings the total awarded to whistleblowers by the SEC to over $500 million, including over $100 million in this fiscal year alone.”
The SEC’s Whistleblower Program, which is administered by the Office of the Whistleblower, was created in 2010 by the United States Congress to provide monetary incentives for individuals to come forward and report possible violations of the federal securities laws to the SEC. An “eligible whistleblower” is a person who voluntarily provides the SEC with original information about a possible violation of the federal securities laws that has occurred, is ongoing or is about to occur. The information provided must lead to a successful SEC action resulting in an order of monetary sanctions exceeding $1 million.
In this time of perpetual change, companies are likely to encounter more whistleblower activity than in the past. With personnel downsizes, there are more unhappy current and former employees than in the past. Also, with businesses adapting to shifting business needs and the potential for greater losses than before, financial reporting may be different and certainly “look different” to personnel than in prior quarters. And most certainly, if companies are taking more risks than they have previously, to keep their businesses afloat, such actions could raise internal suspicion and anxiety. This combination could very well lead to external reporting by unhappy or anxious personnel suggesting possible misconduct.
With changing times potentially bringing waves of new claims, there may be no better time for companies to ensure that their internal reporting mechanisms are strong and accessible. Those that do not might have the misfortune of hearing about their employees’ concerns via the SEC Whistleblower Program.