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Proskauer Whistleblower Defense

Record-breaking $14m Payout Highlight of SEC’s Annual Report

Posted in Dodd Frank, SEC

SEC LogoOn November 15, 2013, the Securities and Exchange Commission’s (SEC) Office of the Whistleblower (OWB) released its third Annual Report on the Dodd-Frank Whistleblower Program to Congress, which details information on OWB’s activities and bounty payouts for the fiscal year, as described in our post on the 2012 Annual Report.

Background

The OWB facilitates the Dodd Frank Whistleblower bounty payout program and coordinates with the SEC’s enforcement branch to investigate whistleblower tips and complaints.  The OWB must annually inform Congress on the whistleblower award program, including a description of the number of awards granted and the type of cases in which awards were granted during the preceding fiscal year.

Four Payouts in FY2013, including $14m Payout

The OWB made four bounty payouts during Fiscal Year 2013.  In an SEC action regarding a “sham” hedge fund, OWB paid out three whistleblowers a total of approximately $832,000.  The fourth OWB payout was a record-breaking $14,000,000 for information leading to the recovery of substantial investor funds.  In another case cited in the Annual Report, a whistleblower will receive a bounty payout in FY2014.    

Total Complaints on the Upswing

The OWB received 3,238 tips in the 2013 fiscal year (an increase of approximately 8% from 2012) coming from all fifty states and fifty-five countries.  California (375), New York (215) and Florida (187) led the list of the most domestic complaints and tips, while the United Kingdom (66), Canada (62) and China (52) topped off the international list.  Additionally, the SEC’s Office of Inspector General has lauded the OWB’s “accessible” online complaint mechanism and responsive hotline.  The list of the three most frequent types of complaints has remained consistent over the last two years, with the most common reports being corporate disclosures and financials (17.2%), offering fraud (17.1%), or manipulation (16.2%).

The Take-Away

Until recently, some may have questioned whether concerns over the SEC’s bounty program were justified given that thousands of complaints yielded only a few relatively small payouts.  However, in light of the most recent well-publicized massive bounty payout, we expect that the number of whistleblower complaints filed with the SEC will continue to increase in 2014.  We also believe that the SEC will pursue an increasing number of enforcement actions arising from whistleblower complaints made pursuant to the program.