As we have reported in a previous post, on 6th June 2011, section 92 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“the Dodd-Frank Act”) amended the Securities Exchange Act of 1934 by adding (amongst other things) securities whistleblower incentives and protections. Section 21F directs the Commission to make monetary awards to eligible individuals to provide voluntarily original information that leads to successful Commission enforcement actions resulting in the imposition of monetary sanctions over $1 million, and certain related successful actions. Awards are required to be made in the amount of between 10% and 30% of the monetary sanctions collected.
The Dodd-Frank Act requires the Commissions Office of the Whistleblower to report annually to Congress on its activities, whistleblower complaints and the response of the Commission to such complaints.
In its first report, just published, it is stated that the Office of the Whistleblower, in the Division of Enforcement, currently consists of six attorneys and one senior paralegal.
Since the whistleblower hotline was established for members of the public to call with questions about the program, the Office has returned over 900 phone calls from members of the public.
During this period the Whistleblower’s Office has been busy publicising the new program actively through participation in webinars, presentations, press releases and other public communications, and also conferring with regulators from other agencies’ whistleblower offices including the Internal Revenue Service, Commodity Futures Trading Commission, Department of Justice, and Department of Labour to discuss best practices and experiences.
The Whistleblower’s Office reports that because the Final Rules only became effective on 12 August 2011, in fact only seven weeks of whistleblower tip data is available for the fiscal year 2011. Notwithstanding that, within that period 334 whistleblower tips were received which break down into different categories as follows:
- Manipulation – 16.2%
- Offering fraud – 15.6%
- Trading and pricing – 5.1%
- Insider trading – 7.5%
- Corporate disclosure and financials – 15.3%
- FCPA – 3.9%
- Municipal securities and public pension – 2.7%
- Unregistered offerings – 5.4%
- Market event – 3.3%
- Other 23.7%
- Blank (nothing specified by the caller) – 1.5%
Although this is, of course, only a short period of statistical samples, it puts the issues with the FCPA into context with all the other types of SEC violations, at approximately 4% of the total.
Geographically the whistleblower submissions arise from individuals in 37 states within the United States, as well as several foreign countries of which China at 10 callers and the United Kingdom at 9 callers were by far the highest.
The SEC concludes that as a result of the very recent launch of the whistleblower program and because of the small sample size, it is too early to identify any specific trends or conclusions from the data collected to date.
The SEC further reports that on 12 August 2011 the Office of the Whistleblower posted notices of covered actions for the 170 applicable enforcement judgments and orders issued from 21 July 2010 to 31 July 2011 that included the imposition of sanctions exceeding the statutory threshold of $1 million. The 90 day deadline for all applications for the initial list of covered actions is 11 November 2011 and because the 90 day application period had not passed with respect to any notices of covered actions as at the end of the fiscal year (which the report covers), applications for awards have not yet been processed: therefore the Commission has not paid any whistleblower awards during the fiscal year 2011.
Presumably when the SEC produces its annual report at the end of the fiscal year for 2012, there will be a great deal more information and, we assume, a significant number of whistleblower awards will have been paid. The analysis should then be much more informative and interesting.
We, at the BriberyLibary, follow this new program with great interest as we are of the view that financial incentives and compensation designed to encourage people with knowledge and evidence to come forward to blow the whistle on corporate corruption (and other legal wrongs) should be seriously considered in the UK without further delay. As we have previously posted, in the competition context, on 3rd August 2011, rewards for whistleblowers already exist in the UK in the competition context and are payable by the Office of Fair Trading, although they are not on the scale potentially foreseen by the SEC’s own program but are limited to £100,000 (which may not be enough to compensate someone whose career might be damaged by speaking out). As always, the US leads the way in developing intelligent “heat seeking” legal strategies and methods to root out serious and systemic crime. Even taking into account the greater size of the US economy, in terms of enforcement it is far ahead of all other developed economies in rooting out large scale national and international bribery and corruption.
The political will to eradicate corruption is growing in many countries, but there are decades of catching up to be done to get to the same level of enforcement with the US.