In the post-financial crisis era, regulators have made the decision to encourage and rely upon whistleblowers as a core enforcement tool in their current efforts to investigate and prosecute corporate wrongdoing. Given the difficulties of white-collar investigations and prosecutions, access to an insider capable of walking a regulator through complex facts, difficult accounting issues or voluminous documents is an obvious draw. And the U.S. Securities and Exchange Commission, which is charged with handling many of these difficult investigations, has demonstrated—both through its words and actions—that it intends to continue to bolster its young whistleblower program as a centerpiece of its enforcement strategy. Yet, as the program has grown, developments in the law, which have created a split between the Second and Fifth Circuits, have raised challenges for companies seeking to internally address allegations of wrongdoing through their own compliance and legal departments.
Striking a Balance Between SEC Involvement and Supporting Internal Compliance Programs. Born out of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC’s whistleblower program has been growing in terms of tips, monetary awards issued, and enforcement actions brought over the past four years. Last year, the program authorized more whistleblower awards to individuals than it had in all the prior years of its existence combined.1 One of those awards—which was the largest ever authorized—was for more than $30 million. As a general matter, these awards are required to be paid out by the SEC to a successful whistleblower in an amount equal to 10 to 30 percent of the monetary sanctions recovered by the SEC, where the overall recovery is over $1,000,000.2
