SEC Whistleblower Tips Eclipse Records Amid COVID-19

By Al Barbarino
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Law360 (November 16, 2020, 9:55 PM EST) -- The U.S. Securities and Exchange Commission's record-breaking fiscal year for whistleblower awards was driven by more than 6,900 tips, an all-time high that was nearly one-third greater than last year's count, according to the office's annual report published Monday.

The report shows the number of whistleblower tips in fiscal year 2020 jumped by nearly 33% to 6,911, from 5,212 in fiscal year 2019. The figure was well over double the 3,001 tips recorded in fiscal year 2012, when record keeping began.

The tips spurred a previously announced record-breaking year during which the agency awarded approximately $175 million to 39 individuals.

Monday's report notes that the third quarter, between April and June, resulted in a particularly high number of tips. Kyle DeYoung, a Cadwalader Wickersham & Taft LLP partner who previously served as senior counsel to former SEC enforcement director Andrew Ceresney and co-directors Stephanie Avakian and Steve Peiken, attributed the spike to COVID-19.

"It isn't surprising that tips were up during COVID," said DeYoung. "Whenever there is huge volatility and a downturn you tend to have an increase in tips because more people have lost money, more people are frustrated, and there's more opportunity for wrongdoing in that sort of a market."  

DeYoung thinks the backlog of virus-related tips will continue to produce payouts as the commission heads into a new fiscal year that is already on track to shatter records.

"I think we'll continue to see the award numbers rise as the SEC continues to process and investigate the COVID-related tips," he said.

"Corporate disclosures and financials" was the top category for tips, accounting for 1,710 of the total and a jump of more than 600 tips from last year. DeYoung noted that COVID-19 and the commission's emphasis on accurate disclosures during the pandemic was likely at play here too.

"The SEC has been focused on company disclosures and almost every company has had to make public statements about pandemic and/or its financial impact on their company. That's created the potential for misrepresentations and likely led to additional allegations of misconduct," he said. "I'm sure that COVID-related marketing and pump-and-dump schemes generated a lot of tips." 

Though huge awards can skew results, DeYoung noted that tips generally have a positive correlation with whistleblower payouts. "The more tips there are, the more likely you are to get more meritorious cases," he said. 

Amendments to the rules governing the whistleblower program increased the program's efficiency and transparency, and "staff implemented a number of efficiencies designed to improve the claims review and award process" during the fiscal year, said Jane Norberg, chief of the whistleblower program, in a statement.

The SEC did not provide additional comment in time for publication.

--Editing by Kat Laskowski.

For a reprint of this article, please contact reprints@law360.com.

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