Whistleblowing to SEC sets record amidst pandemic

Whistleblowing to SEC sets record amidst pandemic

In a report to Congress, the U.S. Securities and Exchange Commission (SEC) noted that it received more than 12, 200 tips from whistleblowers in fiscal year (FY) 2021 (October 1, 2020 through September 30, 2021), an all-time record, and a 76% increase over the previous year.  Tips came from the US and 99 other countries.  In addition, the SEC paid out more whistleblower awards that year than in all previous years combined–a total of $1.1 billion to 214 individuals “for providing high quality information that led to the success of SEC and other agency enforcement actions.”

Whistleblowers receiving awards in FY 2021 included those who helped the Commission open investigations and return millions of dollars to harmed investors. For example, in April 2021, the Commission awarded over $50 million to joint whistleblowers whose information alerted the agency to potential violations and caused the Commission to open an investigation into unlawful conduct that involved highly complex transactions, resulting in the return of tens of millions of dollars to investors.  — Emily Pasquinelli, Acting Chief, Office of the Whistleblower, in SEC’s 2021 Annual Whistleblower Program Report to Congress

The report acknowledged “concerns from the whistleblower community that certain of the Whistleblower Rule Amendments [2020] could discourage whistleblowers from coming forward.” The SEC responded on August 2, 2021 with an announcement that Chair Gensler was “directing staff to consider revisions to Exchange Act Rule 21F-6 concerning the Commission’s discretion to take the dollar amount of the award into consideration when determining the appropriate award amount.” “Chair Gensler also directed staff to consider revisions to Exchange Act Rule 21F-3 concerning “related action” awards where there is another applicable whistleblower award program.”  This sounds more like buck passing than resolution of the problem.

Despite the record number of complaints, the Commission acknowledges it brought only “two actions alleging violations of the Commission’s whistleblower protections,” and only one of those involved retaliation against a specific whistleblower. Retaliation is almost a given in whistleblower cases, generally. Even considering the confidentiality offered to SEC whistleblowers, it’s hard to believe that only one case of retaliation occurred amidst a record number of disclosures.

The SEC’s actions give the appearance of being less focused on protecting whistleblowers than on reaping the benefits of their disclosures. This could be resolved by making whistleblower protection a critical element in the every official’s evaluation criteria, a function that must be performed successfully to retain one’s federal position. That would require officials to describe all they have done during the year to justify a successful rating.