The SEC’s whistle-blower program surpassed the $100 million mark in payments to informants Aug. 30 after granting its second-largest award of more than $22 million. Since Congress established the program under the Dodd-Frank Act, the SEC has paid $107 million to 33 whistle-blowers, and recovered more than $500 million in sanctions from enforcement actions prompted by tips from the public.
The Dodd-Frank Act provisions replaced an ineffective bounty program that authorized the SEC to reward individuals for providing information on insider trading violations. A report from the SEC’s inspector general indicated that during its more than 20-year existence, the SEC made only seven payouts under the program for a “meager total” of $159,537. The current program applies to all judicial or administrative actions brought by the SEC under any of the securities laws.
The current program authorizes the Commission to pay whistle-blowers who voluntarily provide original information to the SEC that leads to a successful enforcement action involving monetary sanctions totaling more than $1 million. Awards can range from 10 percent to 30 percent of the amounts collected as monetary sanctions. The calculation does not include disgorged funds or other reimbursements paid to injured investors.
In September 2014, the SEC paid an informant $30 million, its largest award to date. Since its inception, the agency’s Whistleblower Office has received more than 14,000 tips from individuals in all 50 states and from 95 foreign countries. “The SEC’s whistleblower program has proven to be a game changer for the agency in its short time of existence, providing a source of valuable information to the SEC to further its mission of protecting investors while providing whistleblowers with protections and financial rewards,” said SEC Chair Mary Jo White.
The SEC paid the most recent award to a former Monsanto Company executive. The executive’s “detailed tip and extensive assistance” helped the Commission stop a “well-hidden fraud” in Monsanto’s accounting practices. The company agreed to pay an $80 million penalty and retain an independent compliance consultant to settle charges that it violated accounting rules and misstated company earnings pertaining to one of its leading products, Roundup.
As alleged, Monsanto had insufficient internal accounting controls to properly account for millions of dollars in rebates offered to retailers and distributers of Roundup. The SEC charged that the company booked substantial amounts of revenue resulting from sales incentivized by the rebate programs, but failed to recognize all of the related program costs at the same time.
The Monsanto whistle-blower case illustrates an aspect of the whistle-blower program that can be comforting for potential informants, but frustrating for practitioners. We only know the identity of the company involved because the whistle-blower’s counsel publicly disclosed that fact.
Under the statute and the whistle-blower rules, the identity of whistle-blowers and a significant amount of information that might lead to their identification is withheld from public disclosure. The award order does not identify the individuals and companies involved, the underlying enforcement action or the percentage of the sanctions awarded. The SEC does not disclose its reasoning for granting or denying an award or for setting the particular value.
The confidentiality requirements encourage potential whistle-blowers to come forward, but offer attorneys little insight into the whistle-blower award process. The award order in the Monsanto case states, “In determining the appropriate award percentage, [Redacted] [Redacted] was considered. Several other factors mitigating the Claimant’s culpability were also considered, including that [Redacted] [Redacted].”
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