The U.S. Securities and Exchange Commission’s (SEC) Office of the Whistleblower (OWB) released its 2014 annual report to Congress last month on the Dodd-Frank whistleblower program (http://www.sec.gov/about/offices/owb/annual-report-2014.pdf). OWB’s chief, Sean X. McKessy, states in the report, 2014 was “historic” for the OWB “in terms of both the number of reports filed and dollar amount of whistleblower awards.” The commission issued awards to more whistleblowers during 2014 than in 2011-13 combined. A “record-breaking” award of $30 million was paid to a single whistleblower in September 2014. McKessy pointed out that the SEC made the $30 million award to an individual living in a foreign country, which demonstrates the program’s international reach.
Tips received by the Commission on a yearly basis since the inception of the whistleblower program:
2011 – 334, 2012 – 3,001, 2013 – 3,238, 2014 – 3,620, an 11.8 percent increase over 2013.
Since the beginning of the program, most tips have pertained to alleged securities violations involving corporate disclosures and financials, offering fraud, and manipulation.
*Anti-Retaliation Protection
“OWB identifies and monitors whistleblower complaints alleging retaliation by employers or former employers in response to the employee’s reporting of possible securities law violations internally or to the Commission. The Commission has authority to enforce all the provisions of the Exchange Act, including the whistleblower anti-retaliation protections under the Dodd-Frank Act. OWB works with Enforcement staff on potential anti-retaliation enforcement actions where appropriate. On June 16, 2014, the Commission brought its first anti-retaliation case, charging a hedge fund with engaging in retaliatory practices after learning that the head trader had reported prohibited principal transactions to the Commission. OWB also monitors federal court cases involving the anti-retaliation provisions of the Dodd-Frank Act and the Sarbanes-Oxley Act of 2002.8 For a fuller discussion of the steps the Commission has undertaken with respect to anti-retaliation during Fiscal Year 2014, please see pages 18-19.
In addition, OWB has been working to identify employee confidentiality, severance, and other kinds of agreements that may interfere with an employee’s ability to report potential wrongdoing to the SEC. Rule 21F-17(a) under the Exchange Act provides that “[n]o person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement…with respect to such communications.”9 The Office is actively working with Enforcement staff to identify”.
*Exerpt from the 2014 ANNUAL REPORT TO CONGRESS ON THE Dodd-Frank Whistleblower Program.
When submitting tips by filling out Form TCR or through the online questionnaire, Whistleblowers are asked to identify their complaint allegations. For Fiscal Year 2014, the most common complaint categories reported by whistleblowers included: Corporate Disclosures and Financials (16.9%), Offering Fraud (16%), and Manipulation (15.5%).
Whistle Blower Tips Received by Geographic Location United States and Its Territories Fiscal Year 2014*
AK – 9, AL – 18, AR – 8, AZ – 47, CA – 556, CO – 73, CT – 37, DC -16, DE – 5, FL – 264, GA – 61, HI – 7, IA – 8, ID – 10, IL – 79, IN – 27, KS – 12, KY – 30, LA – 16, MA – 60, MD – 50, ME – 3, MI – 39, MN – 75, MO – 5, MS – 2, MT – 5, NC – 68, ND – 4, NE – 13, NH – 10, NJ – 88, NM – 6, NV – 55,NY – 204, OH – 41, OK – 13, OR – 26, PA – 97, PR – 5, RI – 6, SC – 58, SD – 3,TN – 20, TX – 208, UT – 33, VA – 65, VT – 6, WA – 77, WI – 16, WV – 42, WY – 34
*Multiple individuals may jointly submit a TCR under the Commission’s whistleblower program. Appendix B reflects the number of individuals submitting WB TCRs to the Commission within the United States or one of its territories, and not the total number of domestic WB TCRs received by the Commission during Fiscal Year 2014. For example, a WB TCR that is jointly submitted by two individuals in New York and New Jersey would be reflected on Appendix B as a submission from both New York and New Jersey. The total number of persons submitting WB TCRs in the United States or one of its territories during Fiscal Year 2014 was 2683, which constitutes approximately 68.95% of the individuals participating in the Commission’s whistleblower program for this period. Additionally, 760 individuals constituting 19.53% of the total number of persons participating in the Commission’s whistleblower program for Fiscal Year 2014 submitted WB TCRs without any foreign or domestic geographical categorization or submitted them anonymously through counsel.
Whistleblower Tips Received By Geographic Location International Fiscal Year 2014*
Argentina – 14, Australia – 29, Belgium – 2, Brazil – 6, Burkina Faso – 1, Canada – 58, China, People’s Republic of – 32, Colombia – 4, Costa Rica – 1, Curaçao – 13, Democratic Rep. of the Congo – 1, Denmark – 1, Dominican Republic – 2, Ecuador – 2, Finland – 2, France – 3, Germany – 13, Ghana – 1, Greece – 2, Hong Kong – 5, Hungary – 2, India – 69, Indonesia – 1, Ireland – 4, Israel – 3, Italy –1, Lebanese Republic – 1, Malaysia – 12, Maldives – 1, Malta – 1, Mexico – 6, Monaco – 1, Netherlands – 3, The New Zealand – 1, Nicaragua – 1, Nigeria – 1, Norway – 2, Pakistan – 3, Peru – 1, Philippines – 7, Poland – 7, Portugal – 2, Qatar – 2, Romania – 4, Russia – 10, Saudi Arabia – 1, Singapore – 9, Slovakia – 1, Slovenia – 2, South Africa – 3, South Korea – 2, Spain – 4, Switzerland – 4, Taiwan – 1, Thailand – 6, Turkey – 2, Ukraine – 1, United Arab Emirates – 3, United Kingdom – 70, Uzbekistan – 1
*As with domestic WB TCRs, multiple individuals from abroad may jointly submit a TCR under the Commission’s whistleblower program. Appendix C reflects the number of individuals submitting WB TCRs to the Commission from abroad, and not the total number of foreign WB TCRs received by the Commission during Fiscal Year 2014. The total number of persons submitting WB TCRs from abroad during Fiscal Year 2014 was 448, which constitutes approximately 11.51% of the individuals participating in the Commission’s whistleblower program for this period.
Statutory Context
In 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, which, among other things, added “Securities Whistleblower Incentives and Protection” provisions to the Securities Exchange Act of 1934. These provisions—set forth in Section 21F of the Exchange Act—offer powerful financial incentives to employees and other potential whistleblowers reporting directly to the SEC.
The act directs the SEC to pay awards, subject to certain limitations and conditions, to any one or more whistleblowers who “voluntarily” provide the SEC with “original information” about a violation of the securities laws that leads to a “successful enforcement” action resulting in monetary sanctions exceeding $1 million. Section 21F further requires that an eligible whistleblower receive an award equal to 10 to 30 percent of the total monetary sanctions imposed in the SEC action or related actions. As required under Section 924(d) of Dodd-Frank, the SEC created the OWB as a separate office within the commission’s Enforcement Division to administer the whistleblower program. As the OWB report explains: “It is OWB’s mission to administer a vigorous whistleblower program that will help the commission identify and halt frauds early and quickly to minimize investor losses.”
Several of the successful whistleblowers were “company insiders,” more than 40 percent of them were current or former company employees, and 20 percent “were contractors, consultants, or were solicited to act as consultants for the company committing the securities violation.”
The report describes two of the successful company employee whistleblowers who raised their concerns internally to their supervisors or compliance personnel and then reported their information to OWB. “Only after reporting the information internally and the entity was not taking steps to address or remedy the “violative” conduct.” McKessy acknowledged that these two awards “drive home” the “important message” that “companies not only need to have internal reporting mechanisms in place, but they must act upon credible allegations of potential wrongdoing when voiced by their employees.”
Because of the significant increase in the number and magnitude of SEC whistleblower awards in 2014, along with more than 20 percent increase in OWB Whistleblower tips in just two years, Companies will be well served to take McKessy’s message seriously and continue to maintain and implement a strong internal compliance and reporting program.
The full report can be found here: http://www.sec.gov/about/offices/owb/annual-report-2014.pdf
Parrish Law Firm, PLLC Whistleblower Attorney, located in Manassas and Fairfax works with Northern Virginia citizens who have suffered from compromised working conditions and are looking for fair compensation for their suffering. Contact us today for a free case consultation, or call us at 703-906-4229.
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