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FCPA Blog Daily News

« Corruption risk in pharma and medical device markets | Main | JPMorgan pays $264 million to resolve ‘Sons & Daughters Program’ FCPA offenses »
Friday
Nov182016

Jordan Thomas: The SEC received 4,200 whistleblower tips in FY2016, 238 about the FCPA

The SEC’s Office of the Whistleblower delivered its annual report to Congress Tuesday, detailing the historic success of the Whistleblower Program this fiscal year.

Highlights of the program’s achievements include:

  • In fiscal 2016, the SEC issued awards totaling over $57 million, more than all other awards issued in the program’s previous years combined. Since the program came into effect in August 2011, it has awarded nearly $111 million to 34 eligible whistleblowers.
  • Underscoring the surging momentum of the program, six of the 10 highest whistleblower awards were granted in fiscal 2016.
  • Fiscal 2016 saw an increase in complaints related to Corporate Disclosures and Financials from 17.5% of all complaints to 22%. Offering Fraud (15%) and Manipulation (11%) comprised the next two largest types of complaints.
  • FCPA allegations experienced a significant increase from 186 to 238, a nearly 28% increase in that allegation type.

While there is no requirement that an SEC Whistleblower be an employee to qualify for an award, to date almost 65% of award recipients were company insiders. This percentage has increased from approximately 50% as of last year.

It is also important to note that of these award recipients who were insiders, approximately 80% raised concerns internally to supervisors or compliance personnel, or understood these personnel were aware of the violations, before bringing their concerns to the SEC. A significant concern expressed by corporations is that the SEC Whistleblower Program undermines internal reporting. This statistic indicates strongly that this concern is unfounded.

In fiscal 2016, almost 25% of award recipients reported their concerns anonymously, an unsurprising statistic given that anonymous reporting is the best protection against retaliation and potential blacklisting. In my experience as a long-time advocate for whistleblowers, the more senior the individual, the more likely they are to choose to report anonymously.

40% of individuals received an award for reporting information that significantly contributed to an ongoing SEC investigation and approximately 35% of award recipients were outsiders to the company on which they reported. Prior to Dodd-Frank, these types of tips were exceedingly rare and they demonstrate the value and broad impact of the SEC program in deputizing the public to assist in enforcement efforts.

The success of the program and the SEC’s work to increase awareness has yielded powerful results both domestically and internationally:

  • In fiscal 2016, the SEC received over 4,200 tips, a 40% increase in the number of tips since 2012, the first full year for which data is available. This increase in tips leads us to question: Are violations on the rise or is increased awareness and a powerful partner in the SEC emboldening and empowering whistleblowers to come forward in greater numbers?
  • Individuals in California submitted the largest number of tips, 547, 84.8% more tips than those submitted by individuals in New York.
  • Tips from Ohio are a curious outlier -- where the SEC saw a 370% increase, from 49 to 230, in the number of submissions.
  • Demonstrating the global reach of the program, approximately 24% of all whistleblower award recipients in fiscal 2016 were foreign nationals.
  • During the year, the SEC received approximately 10% of its whistleblower tips from individuals in 67 countries outside the US. The number of international tips increased 10.2% and the number of countries from which tips were reported increased 9.8% in fiscal 2016. Outside of the US, the largest number of tips came from Canada, the UK and Australia, where I recently travelled to speak to members of the legal community and elected officials about the remarkable success of the SEC Whistleblower Program.

Fiscal 2016 also included ground-breaking activity by the SEC to protect and empower whistleblowers to the fullest extent of the law:

The agency brought a first-of-its-kind enforcement action in September 2016, when it commenced a stand-alone whistleblower retaliation case against a company for retaliating against an employee for reporting a possible securities law violation.

The SEC brought charges against multiple companies for the unlawful use of severance agreements and confidentiality agreements to impede employees from reporting to the SEC.

In its report, the SEC also highlighted its landmark action, precipitated by whistleblowers represented by Labaton Sucharow, against Merrill Lynch, in which the company agreed to pay settlements totaling $415 million for its misuse of customer funds to generate profits. Merrill Lynch also settled charges for using language in severance agreements that prevented employees from providing information to the SEC.

This year’s report from the Office of the Whistleblower reveals the growing power and increasing magnitude of the program to fight corruption. The ability to report anonymously, the SEC’s determination to act against retaliatory employers, together with the numerous other protections and incentives of the program, continues to embolden more and more brave individuals to come forward.

Corruption festers, destroying our workplaces and our markets in silence. The Whistleblower Program’s results and continued success demonstrate that empowering individuals to come forward and speak out against misconduct is the most effective solution.

*     *     *

The SEC's 2016 Annual Report to Congress on the Dodd-Frank Whistleblower Program is here (pdf).

____

Jordan A. Thomas is the Chair of the Whistleblower Representation Practice at Labaton Sucharow. He served as an assistant director and, previously, as an assistant chief litigation counsel in the Division of Enforcement at the U.S. Securities and Exchange Commission. He had a leadership role in the development of the SEC Whistleblower Program. Follow him on Twitter at @SECReporter.

A version of this post first appeared  in the SEC Whistleblower Advocate and is published here with permission.

Reader Comments (2)

The fact that 80% of insiders reported to the SEC after discussing the matter with internal compliance personnel, indicates that the culture of these organizations fails to support whistle-blowers. Given that a significant concern expressed by corporations is interference with internal reporting by those who choose to go to the SEC, it seems quite clear that corporations have not embraced the underlying purpose of Dodd-Frank to strengthen internal reporting procedures so that external reporting is not necessary. Absent changes in corporate culture, we will continue to see a rise in whistle-blower complaints. This also argues for greater coverage of Dodd-Frank and whistle-blowing in business ethics courses at the collegiate level.
November 18, 2016 | Unregistered CommenterSteven Mintz
Are these tips sorted by industry?
November 19, 2016 | Unregistered CommenterBarbara Brooks Kimmel
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