THE ERA OF WORK-FROM-HOME WHISTLEBLOWERS
I. Introduction
In response to a series of corporate scandals in 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act.[i] Through the Act, a revolutionary bounty program was formed: The Whistleblower Program.[ii] Since the beginning of the whistleblower program, the U.S. Securities and Exchange Commission (“SEC”) has awarded approximately $562 million to 106 individuals.[iii]
The program was designed to battle two ‘truths’ regarding the cycle of fraud and corruption: “the investor protection status quo was failing” and “law enforcement could not effectively and efficiently police the marketplace without the help of individuals with actionable intelligence.”[iv] Its answer – to provide monetary incentives for individuals to come forward and report possible violations of the federal securities laws to the SEC.[v] This blog will delve into the elements of a claim under the Whistleblower program, navigate the payout requirements and amount structure, and determine the factors influencing the recent rise in whistleblower tips.
II. Reporting a Violation
Under the Program, “an ‘eligible whistleblower’ is a person who voluntarily provides the SEC with original information about a possible violation of the federal securities laws that has occurred, is ongoing, or is about to occur.”[vi] To qualify for an award, an eligible whistleblower must “voluntarily provide the SEC with original information that results in a successful enforcement action in which the SEC collects over $1 million in sanctions.”[vii] Depending on various factors, whistleblower bounties range between 10%-30% of collected sanctions, with the exact percentage at the agency’s discretion.[viii]
The “voluntary” requirement is what separates someone being a whistleblower and someone who is complying with a request for information from relevant authority.[ix] Under the statute, information is provided voluntarily if an individual “provide[s] it to the SEC or another regulatory or law enforcement authority before the SEC requests it from [the individual or their] lawyer, and before Congress, another regulatory or enforcement agency, or self-regulatory organization (such as FINRA) asks you to provide the information in connection with an investigation or certain examinations or inspections.”[x] The general rule behind the information to be provided is that it must be “original information.”[xi] “Original Information” is information derived from an individual’s independent knowledge (“facts known to the individual that are not derived from publicly available sources”) or independent analysis (“evaluation of information that may be publicly available, but which reveals information that is not generally known”) that is not already known by the SEC.[xii]
There are specific rules pertaining to who a whistleblower can be, how a whistleblower conveys their information, what the whistleblower must convey, and when the whistleblower must convey it.[xiii] Now, following these rules are not mandatory if a whistleblower is disclosing information only to clear a guilty conscience; but in order to qualify for a monetary reward, a potential whistleblower must follow the process explained in §240.21F9.[xiv] Alongside the monetary compensation, the program also offers whistleblower protection against retaliation, for which the disclosure standard is less burdensome.[xv] . In order to qualify for the protection against retaliation, a potential whistleblower needs a “reasonable belief” that the information “relates to a possible securities law violation.”[xvi]
III. Recent Trends
Since the inception of the Dodd-Frank Act and Whistleblower Program, there has been a steady increase in the number of tips received.[xvii] In 2012, the Office of the Whistleblower (“OMB”) reported just over 3,000 tips; in 2020, the OMB reported nearly 7,000.[xviii] From 2013 through 2019, there has been a steady increase of reported tips.[xix] . But the largest recorded increase was from 2018 to 2020, with a 31% increase.[xx] . From the programs initial report in 2012, to the 2020 report, the number of whistleblower tips received has grown by roughly 130%.[xxi]
What is causing the uptick in reports? Different theories are proposed to explain the steep increase in whistleblower tips: the covid-related work-from-home;[xxii] media coverage of large settlements;[xxiii] individuals becoming better educated; etc.… Though each theory has their merits, the uptick in reports can be related to factors of each, combined.
Covid-19 has forced businesses to allow people to work from home, which provides coverage from “snooping colleagues” and managers.[xxiv] This “coverage” allows for employees to feel comfortable, thus less concerned about potential retaliation in the face of reporting tips.[xxv] It also enhances the risk for current or former employees to “utilize external avenues to report misconduct, such as to regulatory authorities or social media,” rather than reporting internally.[xxvi] Working alongside of the work-from-home “coverage,” recent media coverage of large whistleblower payouts likely has influence on employees and their interest in reporting.[xxvii] Consider the following headlines: “Nearly $50 Million Awarded to Whistleblower”; “Almost $30 Million Awarded to Two Whistleblowers”; “over $27 Million Awarded to Whistleblower.”[xxviii] If you were an employee of the government or a corporation and had information you believed to be incriminating, after repeatedly seeing headlines like this – would you report it?
[i] Labaton Sucharow: What is the SEC Whistleblower Program?, [hereinafter Labaton], https://www.secwhistlebloweradvocate.com/sec-whistleblower-program/?utm_source-google&utm_medium=cpc&utm_campaign=whistleblowerlaws-national&gclid=CjwKCAjwn8SLBhAyEiwAHNTJbZfbgzqjeIfaDTOJefZQEOj0MK21vO3fY2VYK4Ft8Q6xojJ2ZiI4rRoC-ZgQAvD_BwE.
[ii] Id.
[iii] 2020 Annual Report to Congress: Whistleblower Program, U.S. Securities and Exchange Comm’n., [hereinafter 2020 OWB Annual Report], https://www.sec.gov/files/2020%20Annual%20Report_0.pdf. at 2). $175 million of that was awarded in 2020. (2020 OWB Annual Report, supra note 3, at 2
[iv] Labaton, supra note 1
[v] Office of the Whistleblower: FAQ’s, U.S. Securities and Exchange Commission (Dec. 10, 2020), [hereinafter OWB: FAQ’s], https://www.sec.gov/whistleblower/frequently-asked-questions#faq-3
[vi] Id.
[vii] Labaton, supra note 1
[viii] Labaton, supra note 1
[ix] John Howley, Whistleblowers on Wall Streat A Guide to the Dodd-Frank Whistleblower Rewards Program, (Sept. 14, 2016), [hereinafter Whisteblowers on Wall Street] (2016 WL 6305665) at VI
[x] Id.
[xi] Id.
[xii] Id.
[xiii] Securities Whistleblower Incentives and Protections, §240.21F-9, (last visited Oct. 25, 2021), https://www.sec.gov/files/amended-rules-whistleblower-december2020.pdf
[xiv] Whistleblowers on Wall Street, supra note 9
[xv] Id.
[xvi] Id.
[xvii] 2020 OWB Annual Report, supra note 3, at 27
[xviii] Id.
[xix] Id.
[xx] Id.
[xxi] Id. at 28.
[xxii] Mengqi Sun, Tips to SEC Surge as Working From Home Emboldens Whistleblowers, The Wall Street Journal, (2020), [hereinafter Tips to SEC], https://www.wsj.com/articles/tips-to-sec-surge-as-working-from-home-emboldens-whistleblowers-11591003800);
[xxiii] Whistleblowing History Overview, Whistleblower International, https://www.whistleblowersinternational.com/what-is-whistleblowing/history/, (last visited Oct. 25, 2021
[xxiv] Tips to SEC, supra note 22
[xxv] Id.
[xxvi] Blake, Cassels & Graydon LLP., Investigating from Home: Managing Whistleblower Complaints and Investigation, JDSUPRA, (2020), https://www.jdsupra.com/legalnews/investigating-from-home-managing-34877/
[xxvii] Donald Davison, The Recent Increase in SEC Whistleblower Awards: A Sign of Things to Come?: Corporate Compliance Insights (2014) https://www.corporatecomplianceinsights.com/the-recent-increase-in-sec-whistleblower-awards-a-sign-of-things-to-come-part-1/ :SEC’s release of large whistleblower payout awards within weeks of each other
[xxviii] 2020 OWB Annual Report, supra note 3, at 10