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Jan 09

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SEC Whistleblower Program Collects a Surprising Number of Complaints

The Dodd-Frank Wall Street Reform and Consumer Protection Act added requirements for the SEC to maintain a whistleblower reporting capability, and to annually report on the results each fiscal year. Section 922 of Dodd-Frank added Section 21F to the Securities Exchange Act, requiring the SEC to make monetary awards to those who voluntarily provide original information that leads to successful SEC enforcement actions, and which result in monetary sanctions over $1 million.

The SEC recently issued their first annual whistleblower report, covering a partial year. Because the SEC’s final rules involving their whistleblower reporting became effective August 12, 2011, only seven weeks of whistleblower tip data is available for fiscal year 2011 and reported in the current report. Nevertheless, in this short seven-week period, the SEC received 334 whistleblower tips from August 12, 2011 through September 30, 2011. That is an average of over 20 whistleblower complaints each week. The SEC received even more complaints (although they do not say how many more) because the SEC report is limited to those complaints where a whistleblower completed the form seeking a reward.

With this large number of complaints, one is understandably interested in additional details. The SEC provides some information, although the data is limited by what the complainant decided to provide and limitations from having a new program. Specifically:

  1. The SEC report identifies complaint categories that were self-selected by the whistleblowers in their online questionnaire or hard copy submissions. The SEC did not agree with any of these self-characterizations of the alleged violation type. More important for analysis purposes, the largest category used by the complainants was “other”, which is obviously not very helpful. Additional complaints left this field blank, providing still additional data issues.
  2. In terms of the complainant’s location, California had the largest number of U.S. complaints by far. However, the location field was not completed in an even larger number of complaints, thus again causing challenges for any analysis or conclusions.
  3. Foreign complaints were surprisingly large. In this short seven-week period, China had ten complaints, and the United Kingdom had nine complaints.
  4. Because of insufficient time under the young program, the SEC did not report what occurred from the complaints and resulting investigations.

An independently-operated whistleblower collection system is the best opportunity for companies to obtain control of this area. Internally-operated collection vehicles do not have the same level of credibility with potential complainants, and so encourage the complainant to get an outsider (such as the SEC) involved. See this article on best whistleblower reporting practices for suggestions as to what should be done.

About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2012/01/sec-whistleblower-program-collects-a-surprising-number-of-complaints/

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