The SEC Recently Published its Annual Whistleblower Report For 2017
The Securities and Exchange Commission (SEC) recently released its annual whistleblower report. The report comes as the U.S. Supreme Court is set to decide who is protected as a whistleblower under the Dodd-Frank Act in Digital Realty Trust v. Somers.
Key Takeaways from SEC’s 2017 Whistleblower Report
The SEC’s whistleblower program, which was first launched in 2011, provides a monetary incentive to corporate insiders and others with relevant information concerning potential securities violations to report their information to the Commission. Those who provide high-quality, original information that results in an SEC enforcement action with sanctions exceeding $1 million are eligible for awards ranging from 10 percent to 30 percent of the money collected by the agency.
Since the beginning of the program, wrongdoers in enforcement matters involving whistleblower information have been ordered by the SEC to pay over $975 million in total monetary sanctions, including more than $671 million in disgorgement of ill-gotten gains and interest. The SEC’s 2017 whistleblower report reveals several interesting trends that can help businesses improve their securities compliance strategies. Below is a brief summary:
Awards: In total, the SEC ordered whistleblower awards totaling nearly $50 million to 12 individuals in FY2017. The largest was an award of more than $20 million to a whistleblower who “promptly came forward with valuable information that enabled the SEC to quickly initiate an enforcement action against wrongdoers before they could squander the money, leading to a near total recovery of investor funds.”
Whistleblower Profile: About 62 percent of the award recipients to date were current or former insiders of the entity about which they reported information of wrongdoing to the SEC. Almost 83 percent of the award recipients who were current or former employees of a subject entity raised their concerns internally to their supervisors, compliance personnel, or through internal reporting mechanisms, or understood that their supervisor or relevant compliance personnel knew of the violations, prior to reporting their information of wrongdoing to the SEC.
Defendants: 47 percent of the defendants in cases resulting in whistleblower awards were individuals. Meanwhile, unregistered entities and companies accounted for 25 percent of the defendants. The remainder (28%) were corporate entities registered with the SEC.
Whistleblower Protections: The SEC brought four actions in FY2017 against companies that allegedly violated Rule 21F-17(a) under the Exchange Act, which 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.” All of the actions alleged that the employers used confidentiality, severance, and other kinds of agreements to interfere with an employee’s ability to report potential wrongdoing to the SEC.
Number of Tips: The number of tips received by the SEC continues to grow. In FY2017, the SEC received 4,484 tips, an increase from the 4,218 tips received in FY2016.
Types of Tips: In FY2017, the most common tip categories were Corporate Disclosures and Financials (21.3 percent), Offering Fraud (16.9 percent), Manipulation (10.4 percent), Trading and Pricing (6 percent), and Insider Trading (5 percent).
SCOTUS Decision in Digital Realty Trust v. Somers
The U.S. Supreme Court’s decision will help shape the future of the SEC’s whistleblower program. The specific question before the Court in is whether Dodd-Frank’s anti-retaliation provision for “whistleblowers” extends to individuals who have not reported alleged misconduct to the SEC.
As more fully detailed in a prior article, the SEC’s implementing rule provides protection from retaliation to workers who make protected disclosures regardless of whether they report the information to the SEC or another source. However, the federal courts of appeal have divided regarding whether a whistleblower must complain directly to the SEC in order to qualify as a whistleblower and benefit from the law’s anti-retaliation protections.
The Court heard oral arguments on November 28, although a final decision may not be issued until next June. We will continue to track the case, so stay tuned for updates.
If you have any questions or if you would you like to discuss the matter further, please contact me, Robert Marsico, at 201-806-3364.
Does Your Homeowners Insurance Provide Adequate Coverage?
Your home is likely your greatest asset, which is why it is so important to adequately protect it. Homeowners insurance protects you from the financial costs of unforeseen losses, such as theft, fire, and natural disasters, by helping you rebuild and replace possessions that were lost While the definition of “adequate” coverage depends upon a […]
Understanding the Importance of a Non-Contingent Offer
Making a non-contingent offer can dramatically increase your chances of securing a real estate transaction, particularly in competitive markets like New York City. However, buyers should understand that waiving contingencies, including those related to financing, or appraisals, also comes with significant risks. Determining your best strategy requires careful analysis of the property, the market, and […]
Fred D. Zemel Appointed Chair of Strategic Planning at Scarinci & Hollenbeck, LLC
Business Transactional Attorney Zemel to Spearhead Strategic Initiatives for Continued Growth and Innovation Little Falls, NJ – February 21, 2025 – Scarinci & Hollenbeck, LLC is pleased to announce that Partner Fred D. Zemel has been named Chair of the firm’s Strategic Planning Committee. In this role, Mr. Zemel will lead the committee in identifying, […]
Novation Agreement Process: Step-by-Step Guide for Businesses
Big changes sometimes occur during the life cycle of a contract. Cancelling a contract outright can be bad for your reputation and your bottom line. Businesses need to know how to best address a change in circumstances, while also protecting their legal rights. One option is to transfer the “benefits and the burdens” of a […]
What Is a Trade Secret? Key Elements and Legal Protections Explained
What is a trade secret and why you you protect them? Technology has made trade secret theft even easier and more prevalent. In fact, businesses lose billions of dollars every year due to trade secret theft committed by employees, competitors, and even foreign governments. But what is a trade secret? And how do you protect […]
What Is Title Insurance? Safeguarding Against Title Defects
If you are considering the purchase of a property, you may wonder — what is title insurance, do I need it, and why do I need it? Even seasoned property owners may question if the added expense and extra paperwork is really necessary, especially considering that people and entities insured by title insurance make fewer […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
What Employers Need to Know About the SEC’s Whistleblower Report
Author: Robert A. Marsico
The SEC Recently Published its Annual Whistleblower Report For 2017
The Securities and Exchange Commission (SEC) recently released its annual whistleblower report. The report comes as the U.S. Supreme Court is set to decide who is protected as a whistleblower under the Dodd-Frank Act in Digital Realty Trust v. Somers.
Key Takeaways from SEC’s 2017 Whistleblower Report
The SEC’s whistleblower program, which was first launched in 2011, provides a monetary incentive to corporate insiders and others with relevant information concerning potential securities violations to report their information to the Commission. Those who provide high-quality, original information that results in an SEC enforcement action with sanctions exceeding $1 million are eligible for awards ranging from 10 percent to 30 percent of the money collected by the agency.
Since the beginning of the program, wrongdoers in enforcement matters involving whistleblower information have been ordered by the SEC to pay over $975 million in total monetary sanctions, including more than $671 million in disgorgement of ill-gotten gains and interest. The SEC’s 2017 whistleblower report reveals several interesting trends that can help businesses improve their securities compliance strategies. Below is a brief summary:
Awards: In total, the SEC ordered whistleblower awards totaling nearly $50 million to 12 individuals in FY2017. The largest was an award of more than $20 million to a whistleblower who “promptly came forward with valuable information that enabled the SEC to quickly initiate an enforcement action against wrongdoers before they could squander the money, leading to a near total recovery of investor funds.”
Whistleblower Profile: About 62 percent of the award recipients to date were current or former insiders of the entity about which they reported information of wrongdoing to the SEC. Almost 83 percent of the award recipients who were current or former employees of a subject entity raised their concerns internally to their supervisors, compliance personnel, or through internal reporting mechanisms, or understood that their supervisor or relevant compliance personnel knew of the violations, prior to reporting their information of wrongdoing to the SEC.
Defendants: 47 percent of the defendants in cases resulting in whistleblower awards were individuals. Meanwhile, unregistered entities and companies accounted for 25 percent of the defendants. The remainder (28%) were corporate entities registered with the SEC.
Whistleblower Protections: The SEC brought four actions in FY2017 against companies that allegedly violated Rule 21F-17(a) under the Exchange Act, which 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.” All of the actions alleged that the employers used confidentiality, severance, and other kinds of agreements to interfere with an employee’s ability to report potential wrongdoing to the SEC.
Number of Tips: The number of tips received by the SEC continues to grow. In FY2017, the SEC received 4,484 tips, an increase from the 4,218 tips received in FY2016.
Types of Tips: In FY2017, the most common tip categories were Corporate Disclosures and Financials (21.3 percent), Offering Fraud (16.9 percent), Manipulation (10.4 percent), Trading and Pricing (6 percent), and Insider Trading (5 percent).
SCOTUS Decision in Digital Realty Trust v. Somers
The U.S. Supreme Court’s decision will help shape the future of the SEC’s whistleblower program. The specific question before the Court in is whether Dodd-Frank’s anti-retaliation provision for “whistleblowers” extends to individuals who have not reported alleged misconduct to the SEC.
As more fully detailed in a prior article, the SEC’s implementing rule provides protection from retaliation to workers who make protected disclosures regardless of whether they report the information to the SEC or another source. However, the federal courts of appeal have divided regarding whether a whistleblower must complain directly to the SEC in order to qualify as a whistleblower and benefit from the law’s anti-retaliation protections.
The Court heard oral arguments on November 28, although a final decision may not be issued until next June. We will continue to track the case, so stay tuned for updates.
If you have any questions or if you would you like to discuss the matter further, please contact me, Robert Marsico, at 201-806-3364.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
