Loyola University Chicago School of Law, J.D. 2024
The United States Securities and Exchange Commission (SEC) has announced that they have awarded upwards of $37 million to one whistleblower in 2022. This individual gave important information to the SEC that led to a successful enforcement action against a large European healthcare company. This award took the cake for being the highest payout to a whistleblower in 2022. What does a whistleblower program look like from the regulator’s point of view and why is it important?
What is the SEC Whistleblower program?
Whistleblowers are vital to the enforcement of important legislation and aid in curbing the spread of misconduct within a company. Whistleblowers shine a light on companies engaging in corrupt actions and bring it to the forefront in order for these companies to be held accountable. According to the SEC, a “whistleblower”, is a person who voluntarily provides original information in writing to the SEC that pertains to a possible violation of federal securities laws that is ongoing or about to occur.
According to the Office of the Whistleblower, the SEC Whistleblower program “was created by Congress to provide monetary incentives for individuals to come forward and report possible violations of the federal securities laws to the SEC.” These individuals are exhibiting great courage when they provide information and most probably believe that they are protecting something bigger than themselves, so the risk is worth it. Fortunately, the SEC has provided some protection against companies that may want to alleviate themselves of whistleblowers as they have prohibited retaliation by employers against employees who provide information to the SEC. Moreover, the employer is prohibited from taking any action to prevent an employee from contacting the SEC directly.
On December 19, 2022, the SEC released information about an award presented to a single whistleblower whose report led to enforcement action against a large European healthcare company. The commission has elected not to release the name of the whistleblower or the company to stay consistent with their policy. This award was the most paid to a single whistleblower in 2022 and is among the top ten largest awards ever given by the SEC. Moreover, this award followed the announcement from the SEC that it had received a record-breaking 12,300 tips from potential whistleblowers in the 2022 fiscal year.
Attorneys representing the whistleblower stated that the award stems from a Foreign Corrupt Practices Act (FCPA) settlement that was reached by a publicly traded European healthcare company. According to the SEC, under the FCPA, publicly traded companies within the country are prohibited from bribing foreign officials for preferential treatment for government contracts and other business. In 2010, the SEC decided to create a specialized unit aimed at furthering the enforcement of the FCPA. The enforcement division has provided on the SEC website past settlements that they have been able to reach regarding various named companies. For example, in the same year as the award above the enforcement division was able to reach a $23 million settlement with the Oracle Corporation to address charges that the corporation “violated the anti-bribery, books and records, and internal accounting controls provision of the FCPA in connection with violations at its subsidiaries in Turkey, the United Arab Emirates, and India.”
According to the Wall Street Journal, the whistleblower was a company outsider who provided information about a bribery scheme where distributors of the company “inflated the profit margin on sales of the healthcare products sold to foreign hospitals and used the extra cash to bribe foreign government officials to procure business.” However, the SEC almost ran into an issue while handling the tips because the whistleblower did not first report the information to the company which is an important qualification under the whistleblower program. Nonetheless, the whistleblower made steady efforts to illuminate the misconduct to the regulator and the company, so the SEC waived the requirement in order to start their internal investigation of the company.
What’s to come?
The SEC has awarded more than $1.3 billion to whistleblowers since the inception of the SEC Whistleblower program by way of the Dodd-Frank Act signed into law by President Obama in 2010. Under the SEC Whistleblower Program, whistleblowers are eligible for an award between 10% and 30% of the monetary sanctions collected in actions brought by the SEC and other certain regulatory authorities if the total penalties total more than $1 million.
Proponents of the whistleblower program believe that the program is becoming more efficient every day and is following through on eradicating misconduct within various industries. Specifically, Jason Zuckerman, a whistleblower attorney at Zuckerman Law, has been pleased with the work done by the SEC program stating that the program has hit its stride. He believes that the program is processing applications efficiently and receiving high-quality disclosures leading to the enforcement of securities legislation while protecting investors. The SEC enforcement division will have its hands full in the coming years. What remains important to the SEC is the continued protection of these brave individuals who risk it all in order to protect consumers and hold their employers accountable to the very rules/regulations that they are committed to abiding by.