SEC Issues its First Whistleblowing Report Under Dodd-Frank

The Security and Exchange Commission (SEC) just released the 2011 Annual Report on the Dodd-Frank Whistleblower Program. Its first (of many to come) annual report to Congress.

Clearly, the SEC has been busy.

New Regulations, Big Media Coverage, and a New Office = Lots of Whistleblower Tips

Since the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) was enacted in 2010, the SEC released regulations (effective August 12, 2011) and opened a new office called the Office of the Whistleblower Enforcement Division (August of 2011.) Making it easier than ever to reach out to the SEC, whistleblowers can use a hotline, submit tips online, or call in the old fashioned way. The SEC is aggressively encouraging people to step forward and report suspected misconduct directly to the government:

"Today's rules are intended to break the silence of those who see a wrong. … I believe it is critical to be able to leverage the resources of people who may have first-hand information about potential violations." - Chairman Mary L. Schapiro, May 25, 2011

The carrot for potential whistleblowers is large—if a qualified tip results in a recovery greater than $1,000,000, the whistleblower is eligible for a bounty (between 10% and 30% of the recovery).

In the SEC’s first annual report to Congress, it reported that in the 7 short weeks after the Whistleblowing Regs became effective (August 12-September 30, 2011):

  • The Commission received 344 whistleblower tips—almost 50 tips each week! If the trend continues, the SEC will receive more than 2,550 whistleblowing tips each year.
  •  The most commonly raised tips (besides the “other” category) involve corporate disclosure and financial statements (15.3%), offering fraud (15.6%), and market manipulation (16.2%).
  • California, New York, Florida, and Texas lead the charge on number of claims filed by geographic location.
  • Tipsters in foreign countries aren’t shy either—with people in China, the UK, and Australia leading the way.

The SEC is Poised To Make Bounty Payments

The SEC website lists more than 170 cases (where sanctions against a company exceeded $1,000,000) potentially eligible for whistleblower payouts. And the coffers of the SEC’s Investor Protection Fund (which helps fund the bounty hunter payments to whistleblowers) are full. The Fund balance is more than $452 million.

Employers Must Rise to Meet the Challenge

Organizations aren’t just sitting back waiting for a claim to hit. They are actually being highly proactive—with increased employee communication and training playing an important role in their response. To learn more about what organizations are doing now and plan to do in 2012, and how they are protecting their reputations and the bottom line, check out my recent blog post.

Chat with a solutions expert to learn how you can take your compliance program to the next level of maturity.

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