In November, the SEC’s Office of the Whistleblower released its Annual Report on the Dodd-Frank Whistleblower Program, detailing the quantity, quality and nature of the complaints it received during its first several weeks of operation, and describing the Commission’s responses to those tips. The Report draws on only seven weeks of data and, therefore, provides limited insight into the goings on at the whistleblower office.
According to the Report, the whistleblower office received 334 whistleblower tips from August 12, 2011 through September 30, 2011 (roughly seven per day). The complaints received cover the waterfront in terms of the federal securities violations alleged. As Emily Chasan of the Wall Street Journal’s CFO Report explains, however, “most of the complaints were related to market manipulation, offering fraud, insider trading, trading and pricing, unregistered offerings and market events.” The following comprise the most frequently reported types of whistleblower allegations:
- 16.2% of the complaints alleged market manipulation;
- 15.6% of the complaints alleged offering fraud; and
- 15.3% of the complaints alleged problems with corporate disclosures and financial statements.
Many who read the Report were surprised to find that alleged FCPA violations made up only 3.9% of the tips received.
At a December “SEC and DOJ Hot Topics” seminar in Washington, D.C., Sean McKessy, Chief of the SEC’s Office of the Whistleblower, emphasized that the available whistleblower data is a “small sample size,” and insisted that it is too early to identify overarching reporting trends. Nevertheless, McKessy made several “observations” about the data:
- As compared with whistleblower complaints received in the past, the whistleblower office is experiencing a marked increase in the quality of tips received;
- Contrary to popular expectations, the whistleblower office has not been inundated with “an avalanche” of whistleblower complaints;
- The alleged violations cover “the full gamut” of securities laws violations, and the “most frequently litigated areas” are well represented;
- The whistleblower office is receiving “very detailed, very specific” tips, complaints, and referrals from whistleblowers;
- The whistleblower office is working with whistleblowers and their counsel to move complaints swiftly through “the triage process;” and
- The whistleblower office is actively reviewing tips and making referrals to the SEC Division of Enforcement.
The whistleblower office has not yet made public – in its Report or elsewhere – the details of any bounty payment made to an SEC whistleblower, but Mr. McKessy noted that the Commission has received a number of applications for whistleblower awards. He suggested that the whistleblower office is likely to publicize the amount of any awards paid (without identifying the whistleblowers), along with details of the related enforcement matter. Until the Office of the Whistleblower releases another Annual Report next fall, its reports of awards may provide the best source of information regarding the nature of the complaints it receives, the tips the Enforcement staff are taking up, and the overall success of the program.
While it may be too early to spot themes in the whistleblower data, Mr. McKessy’s observations present one clear takeaway: Whistleblowers are coming forward to the Office of the Whistleblower with information about potential securities laws violations, and companies who have not yet made preparations for handling whistleblower complaints internally should act now.