When Congress passed a law encouraging whistleblowers to report fraud to
the SEC, everyone expected that the Securities and Exchange Commission
(SEC) would get more tips. But the scope of the change has been staggering.
Despite the fact that the Act is not as user-friendly as some whistleblower
statutes, the SEC Commissioner reports that the SEC’s new
whistleblower office received nearly 3000 tips in just its first year.
According to a
blog published by the Wall Street Journal, Commissioner Luis Aguilar laid out the phenomenal success of the program
on Thursday, October 18, 2012, when he spoke to enforcement officials.
According to Commissioner Aguilar, the SEC is receiving an average of
8 tips every day. As of August 8, 2012, the agency had taken in 2820 tips.
The Commissioner said that the tips are coming from around the U.S., and
surprisingly – have come from 45 foreign countries as well. Aguilar
said that he and his staff had seen a “noticeable difference in
the quality of information they have received” as a result of the
The SEC began the whistleblower office in order to implement a portion
of the Dodd-Frank Act. The Dodd-Frank Act was aimed at addressing the
serious criticisms that the SEC had missed a number of critical tips that
could have allowed the agency to prevent some of the financial catastrophes,
such as Enron, that shook the U.S. economy.
Under the Act, the SEC must give whistleblowers a reward for tips that
lead to agency enforcement action. The whistleblower is to receive 10%
to 30% of the amount that the SEC collected from the company that broke
the SEC’s rules. Since the case must be presented to the SEC, the
statute is not a qui tam statute, which would allow the whistleblower
to file suit in the name of the Government. Additionally, the Act is not
as user-friendly as some whistleblower statutes. As with the whistleblower
act that is used the most, the False Claims Act (FCA), the whistleblower
only wins if the Government does. In order to be eligible to collect a
portion of the SEC’s proceeds from the penalties it exacts, the
whistleblower has to have given information that led to a successful SEC
enforcement case. If the SEC doesn’t win – or decides not
to enforce the matter — then the whistleblower cannot recover, either.
But unlike with the FCA, the SEC has to impose a very significant penalty
before the whistleblower can recover. The whistleblower is not entitled
to any part of the proceeds unless the SEC nets more than $1,000,000 in
SEC gave out its first reward on August 21, 2012 – approximately a year after the office was begun.
The reward was not large: the whistleblower received $50,000, which the
SEC said was 30% of the amount that the SEC had been able to get thus
far. The SEC implied that the tip had allowed it to prevent much of what
could have been a multimillion-dollar fraud. The SEC did not identify
the whistleblower, saying that he wished to remain anonymous.
Because the tips are so numerous, Aguilar stressed that the “quality
of the information” they received was extremely important. The quality
of the information “determines how quickly our staff can act and
whether we can increase the odds of capturing true masterminds and whether
we can prevent harm from occurring in the first place,” the Wall
Street Journal quoted him as saying.