Hot tips: SEC fields 3,000 whistleblower complaints in 12 months

BY KEN TYSIAC
November 15, 2012

Roughly 3,000 tips on alleged wrongdoing were passed on to the SEC in the first full fiscal year of a new whistleblower program.

Tips came from all 50 states and 49 countries, according to an annual report on the program for the fiscal year that ended in September. The program was created to comply with a requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, PL 111-203.

“In just its first year, the whistleblower program already has proven to be a valuable tool in helping us ferret out financial fraud,” SEC Chairman Mary L. Schapiro said in a news release. “When insiders provide us with high-quality road maps of fraudulent wrongdoing, it reduces the length of time we spend investigating and saves the agency substantial resources.”

Allegations about corporate disclosures and financials, which represented 18.2% of submissions to the SEC, were the most common category of complaints from whistleblowers, followed closely by offering fraud (15.5%) and manipulation (15.2%).

A total of 3,001 tips were filed, and 143 enforcement judgments and orders were issued during the fiscal year that may be eligible for whistleblower awards. The Dodd-Frank Act allows the SEC to pay financial awards to whistleblowers who provide information that leads to a successful SEC enforcement action with more than $1 million in sanctions.

The SEC’s first award under the whistleblower program totaled nearly $50,000 and was given Aug. 21 to an informant whose identity remains anonymous. The whistleblower is expected to receive more if additional judgments in the case lead to more funds being collected in sanctions. Whistleblowers can receive between 10% and 30% of the sanctions collected, and awards are paid from the Investor Protection Fund established by Congress to fund payments.

Although the whistleblower program has led to successful enforcement actions, reaction to it has been mixed. Some critics say informants will be more eager to contact the SEC to collect bounties than to report wrongdoing to appropriate corporate governance officials who can help companies conduct enforcement, correct problems and combat fraud.

Fifty-one percent of corporate board members participating in a recent BDO survey said the whistleblower program has undermined internal anti-fraud and compliance programs. But 83% said there has been no increase or decrease in the number of internal whistleblower reports at their businesses since the SEC program began.

“A lot of companies have developed those reporting procedures and…the boards pay a lot of attention to those procedures internally,” Lee Graul, a BDO partner who specializes in corporate governance, said in a recent interview. “And I guess if somebody is going to look outside and report, that steals some of the thunder and the responsibilities those people feel they have to identify and evaluate those situations internally.”

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

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