SEC
Whistleblower
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Examining the Surge in SEC Whistleblower Awards This Spring

  • April 30, 2020

Despite a global pandemic that has brought the American workplace to a virtual standstill, the Securities and Exchange Commission has been hard at work, announcing 10 whistleblower awards since the start of the year. This flurry of activity during the first four months of 2020 eclipses any other year since the whistleblower program was established. In fact, last year, the Commission announced only one whistleblower award during the January – April time period.

What accounts for the surge in award announcements? It’s hard to say. Given that the life of an SEC investigation generally takes more than two years, it’s notable that the SEC announced its largest-ever bounty in March 2018. That $83 million award paid to our clients who spoke out against misconduct at Merrill Lynch, likely spurred great interest in the program.

Notable Actions in 2020

+          At an astonishing $27 million, the largest award this year was announced on April 16. Involving an anonymous whistleblower, the order in this case noted that the SEC elected to increase the award after the staff issued a preliminary determination. The matter involved misconduct that occurred partly overseas and, notably, the whistleblower “repeatedly and strenuously raised concerns internally.”

+          In another blockbuster award, $18 million announced on April 28, we know that the whistleblower repeatedly reported the problem internally before reaching out to the Commission. Most distressing, the SEC noted that the employee “suffered hardships” as a result of reporting the misconduct in-house.

+          A $7 million award announced in February highlights the importance of whistleblowers’ ongoing assistance with law enforcement. In this matter, the individual “provided Enforcement staff with extensive and ongoing assistance during the course of the investigation, including identifying witnesses and helping staff understand complex fact patterns and issues…” Again in this case, the whistleblower evidenced “persistent efforts to remedy the issues” and suffered as a result.

Of the $62 million in whistleblower awards announced thus far in 2020, we continue to see the common chain of events: a whistleblower makes earnest efforts to report internally and rather than respond to those concerns to protect investors, the market and the company itself, the organization retaliates against the employee.

Job Insecurity & The Employee Whistleblower

This disturbing trend is particularly concerning given that COVID-19, with its disastrous effect on the economy, has placed the American worker on edge. When a culture of retaliation against whistleblowers meets a time of serious job insecurity, eyes are wide open. Individuals that feared retaliation and stayed silent, may speak out as high-ranking schemers keep cushy jobs and lower level employees face impending doom. Make no mistake, the doom is real: 26 million jobs have been lost over the past five weeks according to the US Department of Labor.

And the insecurity will keep coming. Though not the first industry to take a hit, the financial services sector – the epicenter of SEC violations – is expected to face real strife in the near future. With no activity on the M&A and IPO scene, even Wall Street giants will likely begin significant layoffs. Compensation of those who survive job cuts will also likely suffer. Analysts predict anywhere from 30-40% cuts in bonuses for Wall Streeters. Given that whistleblowers can report to the SEC anonymously when working with an attorney, the risk/reward calculus has changed dramatically.

What’s the moral of the story? Pay close attention to the surge in whistleblower awards and listen to the whistleblowers. The workplace is fragile, employees at risk have less to lose and the SEC is primed and ready to step in and protect the truthteller.

See our whistleblower lawyers’ commentary on the two largest awards of 2020 in Law 360 and learn more about program fundamentals here

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