In what should serve as a cautionary tale for public companies, on March 19, the Securities and Exchange Commission (“SEC”) announced its largest ever Dodd-Frank whistleblower awards – totaling more than $83 million in payouts – with two whistleblowers splitting a nearly $50 million reward, and a third individual receiving more than $33 million. See SEC Release No. 82897 (Mar. 19, 2018). Jane Norberg, Chief of the SEC’s Office of the Whistleblower, said, “we hope that these awards encourage others with specific, high-quality information regarding securities laws violations to step forward and report it to the SEC.”
While the SEC does not comment on the specific details of the underlying enforcement actions that lead to whistleblower awards, the Wall Street Journal reported that the payouts related to a $415 million settlement between the SEC and a financial institution. The settlement arose out of “an SEC investigation [that] found [the financial institution] violated the SEC’s Customer Protection Rule by misusing customer cash that rightfully should have been deposited in a reserve account” that “freed up billions of dollars per week from 2009 to 2012 that [the financial institution] used to finance its own trading activities.”
As we have previously noted here, this continues the trend of larger whistleblower payments. The largest previous award was $30 million in 2014, and the largest award in 2017 was approximately $8 million. The March 2018 awards total more than the SEC paid out in all of FY2017 ($50 million). Indeed, the $83 million awarded in March is more than 50% of the $160 million the SEC paid out from the program’s inception in 2012 through the end of FY 2017 in October 2017.
The increase in the size of whistleblower awards obviously has increased the incentive for individuals to report corporate wrongdoing. Moreover, as we previously noted here, as a result of the U.S. Supreme Court’s recent decision in Digital Realty Trust, Inc. v. Somers, 583 U.S. __ (2018), would-be whistleblowers seeking to sue under the anti-retaliation protections of the Dodd-Frank Act must report alleged misconduct to the SEC, whether or not they also report it internally within the company. Thus, employees who suspect internal malfeasance have more incentive than ever to reach out to the SEC.
Given this added incentive, it is imperative that companies have effective compliance programs in place to detect and remediate wrongdoing. When legitimate concerns of wrongdoing are raised, it is critical that companies take prompt investigative steps and corrective and disciplinary action if necessary.
Finally, as we have noted previously here, because the SEC’s whistleblower program is available to domestic U.S. and foreign companies alike, international companies should be aware of their potential exposure under the whistleblower program, which may bring with it collateral exposure including allegations of wrongdoing under the U.S. Foreign Corrupt Practices Act (“FCPA”).
