The Tips Kept Coming

Todd Ruger

Corporate Counsel

2013-01-01 00:00:00.0

The Securities and Exchange Commission received more than 3,000 whistle-blower tips during the first full year of the Dodd-Frank Whistleblower Program, which allows individuals to report anonymously and receive employment protections and monetary awards.

The tips came from all 50 states and 49 other countries, according to an SEC report released in November. They resulted in 143 enforcement judgments and orders issued during fiscal year 2012 that could qualify for awards because they involved sanctions of more than $1 million.

Whistle-blowers stand to earn as much as $180 million, according to calculations by Jordan Thomas, the chair of whistle-blower representation at Labaton Sucharow (and the former SEC assistant director who helped set up the program).

Awards are significant to the success of the program, Thomas says. Surveys his firm conducted last year showed that 25 percent of financial professionals have observed wrongdoing in the workplace, and 94 percent said they would report it under the protections offered by the SEC.

Only 44 percent knew about the program, however. And Thomas points out that there was a large jump in reporting in August, the same month the SEC announced its first payout. "Once these people become aware of the program, they're going to be reporting," he says.

The SEC release included other revealing statistics. There were far more reports from California (435) than from any other state (New York had 246). The most international reports came from the U.K. (74).

The SEC did not have a similar program before the Dodd-Frank Act, which requires the commission to publish statistics annually. Under Dodd-Frank, it can pay awards to whistle-blowers who provide high-quality, original information about a possible securities law violation that leads to a successful SEC enforcement action with more than $1 million in monetary sanctions.

The SEC is authorized to pay the whistle-blower 10 to 30 percent of the sanctions collected. Awards are paid from the Investor Protection Fund established by Congress. The current balance is $453 million.

A version of this story appeared in The National Law Journal, a sibling publication of Corporate Counsel.