Office of the Whistleblower: a Slow Beginning

• Publication year: 2014

Office of the Whistleblower: A Slow Beginning

Christopher Huslak

OFFICE OF THE WHISTLEBLOWER: A SLOW BEGINNING

While the long-term efficacy of the bounty program offered by the SEC's Office of the Whistleblower is still unclear, as the Office enters its fourth year it is safe to say that its progress thus far has been slow. The Office was created after the SEC's repeated dismissal of valuable information that could have exposed Bernie Madoff's Ponzi scheme years before it was finally put to a stop.¹ This very public debacle made it evident that the SEC was not equipped to handle the volume of whistleblower tips it was receiving, and a new vehicle would be needed to process tips and separate the proverbial wheat from the chaff. A product of the 2010 Dodd-Frank legislation,² the Office of the Whistleblower is designed to serve this function and help the SEC "act swiftly to protect investors from harm and bring violators to justice."³

Despite this lofty goal, the Office has taken time to gain footing. During 2011, the inaugural year of the program, no awards were paid out.⁴ With only one whistleblower receiving an award in fiscal year 2012⁵ and four in 2013,⁶ the number of payouts has remained low. Although some practitioners take the view that these initial payments have set a precedent and will lead to a "tidal wave of cases coming as a result of whistleblowers,"⁷ it is hard to deny that these numbers are underwhelming. This is not, however, due to a lack of

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people coming forward with information. Although the number of payouts remains in the single digits, the yearly report the Office provides to Congress indicates that the total number of tips received is in the thousands. In 2011 the Office received 334 tips (note that the 2011 data only covers a seven-week period), followed by 3,001 in 2012 and 3,238 in 2013.⁸ This discrepancy between the large amount of tips received and the comparatively small number of payouts might be the result of the somewhat disconnected relationship the Office maintains with the rest of the SEC, including its Division of Enforcement.

Contrary to what one might expect, the Office is not directly involved in enforcement actions against corporate wrongdoers. According to Sean McKessy, the Office's Chief, when the Office receives a tip it is looked at by a team of SEC "attorneys, accountants, and analysts,"⁹ including "at least two SEC attorneys."¹⁰ These are the individuals that decide whether the tip has merit. When a...