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SEC Issues First Annual Report On Dodd-Frank Whistleblower Program

Date Published
Nov 17, 2011

The U.S. Securities and Exchange Commission (SEC) has just issued its Annual Report on the Dodd-Frank Whistleblower Program, for Fiscal Year 2011.  Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which was passed in 2010, the SEC is required to issue an annual report on its activities under the new securities whistleblower provisions.  This is the first such report.

The SEC’s Office of the Whistleblower was established earlier this year, and the SEC’s regulations concerning whistleblower claims went into effect on August 12, 2011.  Accordingly, the 2011 Annual Report is based upon only a short time-frame.  Indeed, because the SEC’s fiscal year ended on September 30, 2011, the Annual Report includes data on only seven weeks of activity.

But even those seven weeks of activity are very revealing.  In those seven weeks, the Office of the Whistleblower received 334 whistleblower tips.  By my calculation, that means the Office was receiving an average of 9 ½ tips per day.  I suspect that a lot of whistleblowers, and their attorneys, were waiting for the August 12 to roll around before submitting their tips, and that the Office received an initial wave of tips in the first week or two after August 12.  So, this number is probably a bit inflated, if you look at it as a prediction of the “tips per day” rate on a going-forward basis.  My own highly unscientific hunch, based on this data, is that the SEC Office of the Whistleblower is probably now getting an average of around 7 to 8 tips per day.  Projected out over a full year, this means that the SEC will be receiving approximately 2,000 whistleblower tips per year through the Office of Whistleblower.

The Annual Report breaks down the 334 whistleblower tips into categories.  Here’s that breakdown:

Manipulation (using fraud to manipulate the price of securities) – 16.2%

Offering fraud (fraud in connection with IPO or other offering statements) – 15.6%

Trading and pricing fraud – 5.1%

Insider trading – 7.5%

Fraud in corporate disclosures and financial statements – 15.3%

Foreign Corrupt Practices Act violations – 3.9%

Fraud in connection with municipal securities and public pensions – 2.7%

Unregistered offerings – 5.4%

Market events – 3.3%

Other, or no category – 25.2%

The SEC has not yet made any whistleblower awards, which is not surprising given that the award program is still in its infancy.  But the good news is that the SEC is sitting on an enormous war chest of award money.  The Annual Report states that the fund that is set aside to pay whistleblower rewards currently has more than $452 million.

What does all of this mean for someone thinking about blowing the whistle on either a securities law violation, or a Foreign Corrupt Practices Act violation?  Two things come to mind.  First, the Office of Whistleblower will be processing a very large volume of whistleblower tips, and making your tip “rise to the top” will be crucial in assuring that the SEC aggressively pursues an investigation of your tip.  So, the way in which your tip is presented will make a huge difference.  If you want to get the SEC’s attention, your information needs to be presented to the Office of Whistleblower on a silver platter:  well organized, well thought-out, and persuasively explained.

Second, if you can get over that first hurdle, and if the SEC opens a real investigation into your tip, then the awards should be quite substantial.  The SEC has the funds to pay big awards, and will be under significant political pressure to do so in the near future to justify the whistleblower program.

If you have information about a securities law violation, or a violation of the Foreign Corrupt Practices Act, you should consider consulting a whistleblower attorney who can help you make the best possible presentation to the SEC Office of the Whistleblower, and who know how to protect your interests as the whistleblower.  The lawyers at Tycko & Zavareei LLP, based in Washington, D.C., are well positioned to provide this type of assistance, and offer no-fee, no-commitment initial consultations.

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