Office of the Whistleblower Annual Report: Remarkable Success in Principles & Practices

Jordan Thomas -

The SEC’s Office of the Whistleblower delivered its annual report to Congress, detailing the historic success of the Whistleblower Program this fiscal year. Highlights of the program’s achievements include:

  • In fiscal 2016, the SEC issued awards totaling over $57 million, more than all other awards issued in the program’s previous years combined. Since the program came into effect in August 2011, it has awarded nearly $111 million to 34 eligible whistleblowers.
  • Underscoring the surging momentum of the program, six of the 10 highest whistleblower awards were granted in fiscal 2016. 
  • Fiscal 2016 saw an increase in complaints related to Corporate Disclosures and Financials from 17.5% of all complaints to 22%. Offering Fraud (15%) and Manipulation (11%) comprised the next two largest types of complaints. FCPA allegations experienced a significant increase from 186 to 238, a nearly 28% increase in that allegation type. 
  • While there is no requirement that an SEC Whistleblower be an employee to qualify for an award, to date almost 65% of award recipients were company insiders. This percentage has increased from approximately 50% as of last year. It is also important to note that of these award recipients who were insiders, approximately 80% raised concerns internally to supervisors or compliance personnel, or understood these personnel were aware of the violations, before bringing their concerns to the SEC. A significant concern expressed by corporations is that the SEC Whistleblower Program undermines internal reporting. This statistic indicates strongly that this concern is unfounded.
  • In fiscal 2016, almost 25% of award recipients reported their concerns anonymously, an unsurprising statistic given that anonymous reporting is the best protection against retaliation and potential blacklisting. In my experience as a long-time advocate for whistleblowers, the more senior the individual, the more likely they are to choose to report anonymously.
  • 40% of individuals received an award for reporting information that significantly contributed to an ongoing SEC investigation and approximately 35% of award recipients were outsiders to the company on which they reported. Prior to Dodd-Frank, these types of tips were exceedingly rare and they demonstrate the value and broad impact of the SEC program in deputizing the public to assist in enforcement efforts.

The success of the program and the SEC’s work to increase awareness has yielded powerful results both domestically and internationally:

  • In fiscal 2016, the SEC received over 4,200 tips, a 40% increase in the number of tips since 2012, the first full year for which data is available. This increase in tips leads us to question: Are violations on the rise or is increased awareness and a powerful partner in the SEC emboldening and empowering whistleblowers to come forward in greater numbers?
  • Individuals in California submitted the largest number of tips, 547, 84.8% more tips than those submitted by individuals in New York. 
  • Tips from Ohio are a curious outlier -- where the SEC saw a 370% increase, from 49 to 230, in the number of submissions.
  • Demonstrating the global reach of the program, approximately 24% of all whistleblower award recipients in fiscal 2016 were foreign nationals. 
  • During the year, the SEC received approximately 10% of its whistleblower tips from individuals in 67 countries outside the US. The number of international tips increased 10.2% and the number of countries from which tips were reported increased 9.8% in fiscal 2016. Outside of the US, the largest number of tips came from Canada, the UK and Australia, where I recently travelled to speak to members of the legal community and elected officials about the remarkable success of the SEC Whistleblower Program.

Fiscal 2016 also included ground-breaking activity by the SEC to protect and empower whistleblowers to the fullest extent of the law:

  • The agency brought a first-of-its-kind enforcement action in September 2016, when it commenced a stand-alone whistleblower retaliation case against a company for retaliating against an employee for reporting a possible securities law violation.
  • The SEC brought charges against multiple companies for the unlawful use of severance agreements and confidentiality agreements to impede employees from reporting to the SEC. 
  • In its report, the SEC also highlighted its landmark action, precipitated by whistleblowers represented by Labaton Sucharow, against Merrill Lynch, in which the company agreed to pay settlements totaling $415 million for its misuse of customer funds to generate profits. Merrill Lynch also settled charges for using language in severance agreements that prevented employees from providing information to the SEC.

This year’s report from the Office of the Whistleblower reveals the growing power and increasing magnitude of the program to fight corruption. The ability to report anonymously, the SEC’s determination to act against retaliatory employers, together with the numerous other protections and incentives of the program, continues to embolden more and more brave individuals to come forward. Corruption festers, destroying our workplaces and our markets in silence. The Whistleblower Program’s results and continued success demonstrate that empowering individuals to come forward and speak out against misconduct is the most effective solution.

Strong E&C Programs: New Report Examines Key Characteristics

Jordan Thomas -

Working at the forefront of whistleblower advocacy, we have previously discussed the numerous ways companies hinder or actively retaliate against individuals who choose to bring corporate misconduct to light. In fact, according to the Ethics and Compliance Initiative’s National Business Ethics Survey, more than 1 in 5 respondents said they experienced retaliation after reporting internally. We also continue to witness companies developing new and sophisticated strategies to discourage employees from reporting possible violations.

To be sure, though, the majority of companies want to behave ethically, and are potentially stymied by antiquated internal policies or a lack of guidance regarding appropriate and effective compliance measures.

As part of its continued dedication to improving the current state of corporate ethics, last week the ECI released a new report which examines key characteristics of high-quality compliance and ethics programs. According to the report, common practices of organizations with strong ethics and compliance cultures include:

  • Creating an environment in which employees are encouraged and able to speak up. Management in such organizations not only offers ample opportunity for employees to voice concerns, but also takes retaliation seriously through actively engaged HR, legal and compliance departments.
  • Acting quickly and maintaining accountability when misconduct occurs. These organizations develop a plan of action in which suspicions are thoroughly investigated, and confirmed misconduct leads to consistent consequences, regardless of the employee’s position.

  • Treating compliance programs as central to business strategy. Misconduct poses dire business risks. As a result, an organization that is serious about ethics will ensure that the compliance department is not only responsible for meeting legal requirements, but also works to help management understand and establish integrity to benefit the organization’s overall mission.

It is apparent that companies must demonstrate greater leadership in building ethical cultures, and we applaud the focus and continued work by the ECI to help advance this goal. In our ongoing effort to root out misconduct in the workplace, the ECI’s report provides a solid foundation of principles and practices on which we can continue to build.

​Choosing to Act: Paths for Potential Whistleblowers

Jordan Thomas -

Among the many exciting trends examined in the recent annual report of the SEC Office of the Whistleblower, I was particularly impressed by the substantial growth in the number of tips received by the Commission. The nearly 4,000 tips—a record—not only illustrates growing public awareness of the program, but also demonstrates public action. Simply, a startling and increasing number of individuals are coming forward to stop corruption in the workplace. We are living in the age of the whistleblower, because so many courageous individuals take on this responsibility as law enforcement’s first line of defense against wrongdoing.

Thinking about this topic, I was reminded of an interview I gave to Chief Investment Officer for an informative article, If You See Something, Say Something: A Whistleblowing Choose Your Own Adventure. In addition to referencing our recent landmark study of the financial services industry, the article cleverly lays out various options available to whistleblowers. As the article makes clear, fraud persists, and the question of how and when to blow the whistle is an extraordinarily complex one. If you are interested in reading more about key considerations for potential whistleblowers, click here.

A Bold Step Forward: New UK Rules Empower Whistleblowers

Jordan Thomas -
Just last month, the UK’s Financial Conduct Authority (FCA), together with the Bank of England’s Prudential Regulatory Authority, published strident new rules to encourage and support whistleblowers at financial institutions. By September 2016, banks and credit unions with more than £250 million in assets must standardize internal whistleblowing programs. They must also assign a senior manager to act as a whistleblower “champion.” Other requirements include an annual report on whistleblowing and notifying employees of whistleblowing services. Though currently applicable to UK institutions, these requirements could eventually apply to all regulated financial institutions in the country, including overseas banks with branches in the UK.

This landmark move addresses ongoing concerns about systemic ethical issues within the industry. Earlier this year, in an expansive survey we conducted together with the University of Notre Dame, The Street, The Bull and the Crisis, we uncovered some troubling findings on the topic of ethics in the US and UK financial services industry:

  • When asked if they ever felt pressure at work to compromise ethical standards or violate the law—approximately 14% of the survey’s UK respondents admitted feeling such pressure. This was a full 6% higher than respondents in the US.
  • 24% of UK respondents said it was likely that their employer would retaliate if they were to report wrongdoing in the workplace.
  • And perhaps most troubling, more than 1 in 5 respondents said they believed their company’s confidentiality policies and procedures barred the reporting of potential illegal or unethical activities directly to law enforcement or regulatory authorities.

While there is clearly much work to be done on both Wall Street and Fleet Street, we are making real progress. Indeed, in 2012, I was privileged to give an address at the House of Commons about the ethical crisis that led to the development of the SEC Whistleblower Program and the program’s powerful and ground-breaking effect on law enforcement. I continue to have great faith in our combined abilities to bring forth and empower truthtellers wherever they reside. I note that in fiscal 2014, the SEC reported that it received 70 tips from whistleblowers in the UKthe highest number from any country outside of the US.

These latest rules promulgated by the FCA are a promising sign. Like the SEC’s Whistleblower Program, these rules recognize the crucial role of each individual employee in the fight against wrongdoing and offer the best hope for industry-wide reform.

SEC Announces Fiscal Year 2015 Enforcement Results: Innovative Actions to Fight Corruption

Jordan Thomas -
The SEC just released its fiscal year 2015 results, which highlight the Commission’s stalwart determination to protect investors, hold companies and executives responsible for misconduct, and demand integrity in our financial markets. The SEC’s enforcement approach brought an amazing breadth and depth of cases spanning the entire securities industry. The Commission filed 807 enforcement actions, a nearly 7% increase from fiscal 2014, and obtained orders totaling approximately $4.2 billion in disgorgement and penalties.  

The SEC’s Whistleblower Program continued to grow in fiscal 2015, awarding approximately $38 million to whistleblowers. The program’s many accomplishments included a case where Labaton Sucharow represented the whistleblower, in which the agency issued the maximum award in the SEC’s first retaliation case as well as a landmark action against a company for the use of confidentiality agreements to impede whistleblowers from communicating with the SEC. The evidence is clear: even as corporations seek to block its progress, this revolutionary program continues to gain momentum and make a huge impact on the industry.

The year also witnessed numerous other first-of-their kind cases as well as innovative leveraging of data and quantitative analytics by the SEC. The fiscal summary offers an extremely encouraging look at the SEC’s hard-driving quest to hold the securities industry accountable and ferret out corruption in all sectors, at all levels. And this year’s results make a powerful statement about the strength of the SEC’s enforcement efforts today and in the future.

The Truth About Corporate Whistleblowers

Jordan Thomas -
Disgruntled employees out for revenge. Rats. Opportunists. We’ve all heard the derogatory terms aimed at whistleblowers. And there’s a cruel irony at the core of the name-calling: since whistleblowers often operate quietly or anonymously, they are unable to correct the many common misconceptions about their character and motives.

In the aftermath of the financial crisis, however, interest in the ability of whistleblowers to deter misconduct has created a surge of studies and surveys that shed light on the average whistleblower. A whitepaper published this year by compliance organization The Network utilizes data from various sources, including the Ethics and Compliance Initiative’s National Business Ethics Survey, to provide a compelling snapshot of the average whistleblower. Here are just a few interesting details from The Network’s whitepaper:

  • 92% of whistleblowers report internally first. Furthermore, only 20% ever tell anyone outside their company and only 9% report to the government. Whistleblowers aren’t looking to punish companies. In fact, they most often speak out precisely because they care deeply about their workplaces.
  • Money is not the motivator. Research reveals that the primary reason whistleblowers go outside the company is a fear of retaliation – not a desire to collect a reward. According to the NBES survey, for instance, more than 1 in 5 respondents said they experienced retaliation after reporting internally and more than one-third of those who did not report internally said that fear of retaliation was the reason they chose not to do so.
  • Whistleblowers are good employees. Contrary to the stereotype of a resentful worker, in reality the average whistleblower is likely to be a well-regarded employee. Also, the whistleblower is likely to hold a high-level managerial or supervisor position within the company.

It has become increasingly clear that we must do all we can to protect and encourage truth-tellers. Standing at the crossroads of a pivotal time for corporate ethics, we have the opportunity to finally make progress against years of systemic corruption.

Historic Survey Sounds the Alarm: We’re Losing the Ethical Battle, Wall Street

Jordan Thomas -
Together with the University of Notre Dame, today we released the findings of a collaborative and historic survey of financial services professionals across the U.S. and UK. The Street, The Bull and The Crisis is the most expansive analysis of its kind, probing the ethical views of a broad spectrum of the industry, from young professionals to senior executives, investment bankers, and investment managers, from San Francisco to Scotland.

Despite sweeping reform efforts and headline-making consequences of corporate misconduct, the findings make clear that attitudes toward corruption within the industry have not changed for the better. Indeed, nearly half those polled find it likely that their competitors have engaged in misconduct in order to gain an edge in the market. On an individual level, 32 percent of professionals with less than a decade in the business would engage in insider trading if they could get away with it. That’s twice the figure (14 percent) for employees with more than two decades in the industry. What does this mean for the future of the industry and how will it impact the fragile confidence of investors?

We are most concerned by findings relating to the widespread use of secrecy policies and agreements—a full 25 percent of individuals earning $500,000+ per annum have been asking to sign a confidentiality agreement that would prohibit reporting illegal or unethical activities to the authorities. As federal agencies and Congress has made clear, corporate entities cannot obstruct an individual’s fundamental right to freely engage with his or her government.

For more information on our findings, please see the full report here or see select highlights in this infographic.

Location, Location, Location: The Geography of an SEC Whistleblower

Jordan Thomas -
In the SEC’s report to Congress, just released today, the agency documented the tremendous success of its revolutionary investor protection initiative. As we peel back the layers of the report, we note some startling findings with respect to the origin of whistleblower submissions. First and foremost, the program’s international reach is inarguable. This year’s largest award — more than $30 million! — came from a foreign tipster. And, of all 14 awards issued by the SEC to date, four were awarded to whistleblowers outside the U.S. This year, the agency received tips from 60 different international jurisdictions, with the UK, India, Canada, China, and Australia chief among these. Within the U.S., submissions came from every state in the union. The busiest states for whistleblowers in FY2014? California, Florida, Texas, and New York. How this stacks up to 2013 submissions is particularly interesting: submissions from California jumped by 48%; Florida by 41%; Texas by 54%; and New York, which fell from 2nd to 4th place, actually recorded a 5% drop in submissions. To view the SEC report in its entirety, please see here.

Historic Year for Whistleblowers, Report Confirms

Jordan Thomas -
The SEC Office of the Whistleblower has just released its report to Congress chronicling the program’s success over the last year. The data is extremely encouraging, serving as an apt reminder that a quiet revolution in law enforcement is underway, powered by whistleblowers who dare to speak out against misconduct. Highlights from this year’s report include 3,620 whistleblower tips - an increase of more than 20% in the number of tips in just two years. The SEC made 9 whistleblower awards in FY2014, the largest of which exceeded $30 million. The balance of the Investor Protection Fund at the close of the fiscal year was an astonishing $437 million! Tips came in from every state in the union and 60 countries, including a significant number of submissions from the UK, India, Canada and China. The report also highlighted the Agency’s new muscle, flexed in its case against Paradigm Capital (where I represented the whistleblower), in which the SEC used its new authority to bring anti-retaliation cases against entities seeking to undermine whistleblowers.

Achievements, Challenges and Change: A Look at the Past, Present and Future of the SEC Whistleblower Program

Jordan Thomas -
Four years ago, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act, the most sweeping financial reform effort since the Great Depression. One of Dodd-Frank’s key charges was the creation of a whistleblower program that offered anonymous reporting, employment protections and significant monetary incentives to eligible SEC whistleblowers.

Is the program working? Are whistleblowers strengthening corporate compliance programs? Will the program be a game-changer in securities enforcement?  What makes corporate whistleblowers successful?

We invite you to read our Year in Review, a report that examines the major developments related to the SEC Whistleblower Program over the past 12 months and how these developments are likely to impact the future of corporate whistleblowing and how responsible organizations do business.