The Whistle Keeps Blowing: SEC Whistleblower Office Releases Its 2017 Annual Report

The SEC released its Fiscal Year 2017 Annual Report (the “Report”) to Congress on the Dodd-Frank Whistleblower Program on November 16, 2017. The Report analyzes the tips received over the last twelve months by the SEC’s Office of the Whistleblower (“OWB”), provides additional information about the whistleblower awards to date, and discusses the OWB’s efforts to combat retaliation and other actions that muzzle whistleblowers.

Breakdown of Tips Received in FY 2017

The OWB reported a modest increase in the number of whistleblower tips and complaints that it received in 2016–4,484 tips in 2017 compared to 4,218 tips in 2016. Overall, the 2017 whistleblower tips were similar in number and type of whistleblower tips reported in 2016. The most common types of allegations in 2017 were Corporate Disclosure and Financials (21%), Offering Fraud (17%), and Manipulation (10%). Most whistleblowers, however, selected “Other” when asked to describe their allegations.

The OWB received whistleblower tips and complaints from all 50 states, the District of Columbia, and Puerto Rico. Domestically, the largest number of whistleblower complaints and tips were from California (500), New York (438), Texas (250), Florida (229), and New Jersey (175). Additionally, the OWB received whistleblower tips from individuals located in 72 foreign countries. Of these, the countries from which the largest number of tips originated were the United Kingdom (84), Canada (73), Australia (48), and the People’s Republic of China (39), with Belgium, Chile, Germany, Hong Kong, India, Ireland, Mexico, Russia, South Africa, South Korea, Spain, and Switzerland being other countries from which the SEC received more than 10 tips.

Profiles of Bounty Recipients

Overall, the SEC awarded nearly $50 to 12 individuals in FY17, bringing the total payout under the program to approximately $160 million to 46 individuals since the program’s inception.

The Report states that 55% of award recipients were current or former employees of the company about which they reported violations.  Of those, approximately 83% either raised their concerns internally first or knew that the company was otherwise aware of the issues before they reported the violations to the SEC.  The award recipients who were not current or former employees obtained their information either because they were (1) victims of the fraud, (2) professionals in a related industry, or (3) had a personal relationship with the alleged wrongdoer.  Nearly 46% of award recipients did not have counsel when they initially submitted their tips to the agency, and approximately 19% of award recipients submitted their anonymous tips to the SEC.

Additional OWB Priorities

The Report reaffirmed the OWB’s continued focus on retaliation against whistleblowers and other company actions that could muzzle whistleblowers from communicating with the SEC.  The SEC detailed several enforcement actions and fines imposed on companies that it either determined imposed overly restrictive separation agreements on departing employees or that engaged in unlawful retaliation against whistleblowers.  The Report also highlighted the SEC’s role in filing numerous amicus briefs supporting the proposition that individuals who make reports internally to their employers are protected from retaliation under Dodd-Frank.  There is currently a split of authority on the issue, and the SEC has issued interpretive guidance stating internal reporting is protected.  On November 28, 2017, the Supreme Court heard oral argument in a Ninth Circuit case, Somers v. Digital Realty, one of the cases in which the SEC participated as amicus.  From the nature of the questions asked at oral argument and the current composition of the Supreme Court, we think it is likely Somers will be overturned and the definition of a whistleblower under Dodd-Frank for purposes of obtaining the anti-retaliation protections of that statute will be limited to individuals that have reported to the SEC.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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