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Records are Made to be Broken

October 28, 2020

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Records are Made to be Broken

October 28, 2020

Authored by: Ashley Ebersole

On the heels of a nearly $50 million record whistleblower payout in June 2020, the Securities and Exchange Commission announced on October 22 that it shattered that mark by awarding a whistleblower an extraordinary $114 million bounty. As described in the press release, the total included $52 million from the SEC, and a $62 million sum from “related actions by another [unspecified] agency.” The SEC’s Order further detailed that though the award arose from an action that was the subject of submissions from four would-be whistleblowers, the only payout was made to a whistleblower who (i) internally reported his or her concerns, (ii) provided information that caused the SEC and other agency to open investigations into the wrongdoing, (iii) provided “substantial and ongoing assistance” throughout the investigation that saved government time and resources, and (iv) suffered “serious personal and professional hardships” as a result of the whistleblowing activity. The SEC provided scant information on the target or substance of the underlying enforcement action, but the record award comes one month after the agency enacted amendments to its rules that were intended to “further incentivize whistleblowers” – something it would seem to be underscoring with windfall payments.

SEC Amends Whistleblower Award Program Rules to Add Clarity, Efficiency and Transparency

On September 23, 2020, the SEC voted 3-2 to adopt long-awaited amendments to rules governing its Whistleblower Program. The amendments’ stated purpose is to provide greater clarity to whistleblowers, and increase the whistleblower program’s efficiency and transparency.  In addition, according to SEC Chairman Jay Clayton, the “rule amendments will help us get more money into the hands of whistleblowers, and at a faster pace.” Click here to read the Alert in full.

U.S. – Significant Increase in Complaints Brings Potential for Increased SEC Whistleblowing Activity

Among the myriad quarantine pursuits undertaken by the work-from-home crowd, whistleblowing appears to be proving popular. Recent reports indicate that the SEC received more than 4,000 Tips, Complaints, and Referrals (“TCRs”) regarding possible corporate malfeasance between mid-March and mid-May.  As noted by Division of Enforcement Co-Director Steve Peikin in a recent speech, that represents an approximate 35% increase over the same period last year.  This surge in TCRs has resulted in the SEC initiating hundreds of new investigations of alleged misconduct in the contexts both of COVID-19 and many other traditional areas.  After already facing challenges from the coronavirus pandemic, many employers may be surprised by this new COVID-19 side-effect.

Under the SEC’s Whistleblower Program, individuals who report TCRs containing high-quality original information that results in financial relief exceeding $1 million may be eligible for monetary awards ranging from 10% to 30% of that relief.  Since the Program’s inception, tips have resulted in more than $2 billion in financial relief, and more than $500 million in related whistleblower awards.  These figures include the recent record award of nearly $50 million to a single whistleblower on June 4, 2020.  Some have attributed the surge in TCRs to a combination of increasingly rich award sums, potential TCR filers’ being emboldened by their remote work environments and/or harboring increasing frustration over their job or financial situations, and enmity by furloughed or terminated employees.

Regardless of its cause, the increase in TCRs means that issuers and regulated entities should evaluate their

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