SEC Whistleblower Office Saw Most Muni, Pension Tips Ever in 2016

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WASHINGTON – The Securities and Exchange Commission's whistleblower office fielded more allegations involving municipal securities and public pensions in fiscal year 2016 than ever before, according to a report it sent to Congress.

The report said the office received 67 muni and pension related allegations in 2016, three more than in 2012 and a more significant rise from the 48, 58, and 57 the office received in 2013, 2014, and 2015, respectively.

The category that accounted for the largest number of allegations in 2016 was that related to corporate disclosures and financials, which included 938 tips.

The Office of the Whistleblower, which the SEC established in response to Dodd-Frank Act provisions, has been keeping data on allegations since 2011. Altogether, the office has received 239 whistleblower tips of alleged municipal securities and public pension abuses.

Dodd-Frank amended the Securities Exchange Act of 1934 in part by adopting Section 21F, which directed the SEC to make monetary awards to eligible individuals who voluntarily provide original information that leads to successful commission enforcement actions resulting in monetary sanctions of $1 million or more and successful related actions.

Whistleblower awards are paid out of the Investor Protection Fund, which Congress created along with Dodd-Frank to ensure whistleblower payments do not lessen the amount that victims of securities law violations can recover. The fund had a $368 million balance at the end of fiscal year 2016.

Since the establishment of the SEC's whistleblower program in August 2011, it has awarded more than $111 million to 34 whistleblowers.

"The total award amount demonstrates the invaluable information and assistance whistleblowers have provided to the agency and underscores the program's extraordinary impact on the agency's enforcement initiatives," Jane Norberg, chief of the Office of the Whistleblower, said in the report.

The office awarded $57 million of the $111 million total to 13 whistleblowers in 2016, which represented a larger cumulative award amount than in all previous years combined. Additionally, six of the ten highest awards ever given were made in 2016. The largest ever whistleblower pay-out came in September 2014 when the commission awarded $30 million while the second and third-largest awards both were given in 2016 and were $22 million and $17 million, respectively.

The office received 4,200 tips in 2016, a 40% increase from the office's first full year of data in 2012. Individuals in California were responsible for the most tips in 2016, sending in 547 of them. Florida, New York, Ohio, Texas, and Illinois also accounted for a large number of the 2016 tips. The office also received tips from a total of 67 foreign countries in 2016. It has heard from individuals in 103 countries apart from the U.S. over the course of the program. Australia, Canada, and the United Kingdom led other countries in the number of tips sent to the SEC in 2016.

The whistleblower office has a number of responsibilities during any fiscal year. It solicits whistleblower applications by posting a notice on its website for every SEC enforcement action that results in monetary sanctions over $1 million. It then determines which of the individuals who applied deserve awards. It is also the primary point of contact for individuals either submitting a tip or considering doing so.

Other SEC whistleblower office work in 2016 involved reviewing restrictive agreements like those involving confidentiality or severances to ensure employers were not using them to restrict individuals' abilities to report potential wrongdoing. Additionally, the office investigated alleged instances of employer retaliation against employees that reported violations.

Whistleblowers can receive awards when they provide a tip that initiates an investigation as well as when they give information that significantly contributes to an existing investigation.

Of the 34 whistleblowers who have received awards, about 60% provided original information that initiated an investigation while the remaining 40% gave new information that significantly contributed to an existing investigation, according to the 2016 report. About 65% of the 34 whistleblowers who received awards were insiders of the entity on which they reported and about 80% of those initially raised their concerns to supervisors or compliance personnel before reporting, the commission said.

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