SEC Paid Out Record $175 Million to Whistleblowers, Won't Cap Awards

After dropping plans to put a limit on awards to whistleblowers, the US' Securities and Exchange Commission (SEC) said it paid out a record of more than $175 million through Sept. 30 to 39 people who revealed wrongdoing.

The mark was set after the agency accelerated efforts to pay those whose information brought a bonanza, after years of complaints it had been too slow in providing the rewards, The Wall Street Journal said.

“We are sending the message to people that if you bring us high-quality tips, we’re going to dig into them, and pursue actions with vigor, and then we’re going to get you a whistleblower award promptly,” SEC Chairman Jay Clayton – who is leaving at the end of the year - told the newspaper.

The amount was 4 percent higher than the previous record—about $168 million in fiscal 2018—and almost three times the total issued in fiscal 2019, when $60 million was distributed to eight people, the report said.

Before the start of the new fiscal year Oct. 1, the SEC's whistleblower’s office also issued a record 315 preliminary determinations of award claims detailing whether a tipster's report should be approved.

That is 96% more than the record set in 2014 when the majority of the preliminary orders were denials issued to one claimant, the newspaper said.

The whistleblowers revelations brought 715 enforcement actions, a record $4.68 billion in judgments, 475 bars or supensions and the delisting of 130 companies, the agency's report added, according to CFO Dive.

During the time of COVID-19, with investigators working remotely the average time at which judgments and awards were made fell to a five-year low of 21.6 months with one, against retailer Neiman-Marcus taking only five weeks.

The SEC doesn't reveal whistleblowers names but one received $114 million, the kind of incentive that has seen people willing to take the risk of being discovered or retaliated against, the agency's program proving profitable.

The agency backed off a proposed cap after an outcry from whistleblower advocates and lawyers who said it would discourage people from filing reports, lessening what the SEC would bring in.

The agency modified a proposal that would have disqualified whistleblowers who contacted anyone from the commission before filing a formal complaint.

Stephanie Avakian, director of the division which oversees the whistleblower program, told the Journal that the office has added five attorneys, raising the number to 13, backed by a support staff.

“The program, like everything else, needs to adapt over time,” she said. “It’s really paid massive dividends, and I expect those dividends to only increase as time goes by.” The awards were given after reviewing some 6,900 whistleblower tips, the most since 2011.

Lawyers for whistleblowers told the paper the increase is due in part to the pandemic with more people working from home, not worrying about using a company computer or being monitored if they want to file a report.

“There’s probably been a fair amount of uptick in things to complain about in light of COVID,” she said, adding that it can't be determined for certain and the agency doesn't reveal information about the tips either.

Under the program, enacted as part of the 2010 Dodd-Frank Act, a whistleblower can receive 10-30 percent of the fines levied in SEC civil enforcement actions that result from a tip, assuming the penalties surpass $1 million. It has awarded some $720 million to 113 people.