Whistleblower Awards at SEC Backlogged

The SEC whistleblower program is having trouble keeping up with the number of people applying for awards, according to a Wall Street Journal article yesterday. More than 80% of the whistleblowers filing claims for awards since 2011 have not yet received a decision.

According to the numbers obtained for the article, there have been 297 individuals applying for awards. 247 have yet to get a decision from the Commission. Andrew Ceresney, the Director of the Enforcement Division at the SEC, explained to the WSJ that the awards raise complex issues which are being addressed for the first time.

Hopefully, they will be able to work out these issues soon. Because it will be very concerning if the problem grows with the program. The number of tips provided in the first quarter of this year was up more than 20% over last year. If this growth continues, the logjam at the award stage may grow to become a much bigger issue.

The latest whistleblower award can at least provide some insight into the length of the process for awards at the SEC. The settlement of the enforcement action against Paradigm Capital Management was made in mid-June last year. The award for $600,000 was just handed down at the end of April. That’s ten months from start to finish in an application that probably had little controversy, including the three or four months for the deadline of the Notice of Covered Action to pass.

However, some of the awards have been pending for nearly two years now. There have been less than 200 claims made in Fiscal Years 2014 and 2015, so at least some of the tipsters made their claims in FY 2013, which ended September 2013.

At least the percentage of awards out of the claims that have been decided is encouraging. Of the 50 award claims, there have been 17 awards so far. At least several of the denied claims, if memory serves, dealt with tips made prior to the passage of the Dodd-Frank Act. The percentage of awards to denials is also much better than the CFTC. The CFTC has denied 30 claims and paid out on one tip.

According to the Award Determinations posted on their website, the CFTC only made six decisions in all of 2014. Of course, the commodities regulator receives a smaller amount of tips than the SEC every year, about 10% of the number. However, it is the CFTC program right now where a whistleblower could have a decent shot at an award over $100 million. The due date for four of the five Notices of Covered Action in the November Forex fines has just passed. Award claims related to the Citibank action are due next week. Across the three regulators in the United States participating in the settlement and the UK FCA, the banks paid more than $4 billion. This opens up the possibility for a new record Dodd-Frank award. The largest award currently is $30 million.

The Dodd-Frank programs, to this point, have generally been considered a success. They still have a long way to go before they achieve the success of the False Claims Act, which paid out more than $400 million to whistleblowers last year.

Hopefully, the SEC program won’t follow the path of the Internal Revenue Service. Their program has been routinely criticized in the media over the past three years for the absence of awards given the large number of individuals that provide tips to the agency. They have also been criticized by Senator Chuck Grassley, and others, about their lack of communication with the people that are providing them tips.

Have questions? Our SEC whistleblower attorneys can assist you. For a free consultation, please contact us or call 1-800-590-4116 to speak to a lawyer at McEldrew Young.

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