The number of whistleblowers receiving awards from the Securities and Exchange Commission dropped sharply in fiscal year 2023, even as more tips poured in than ever before, and a single informant received the largest payout in agency history.

The agency received more than 18,000 tips in the fiscal year ending Sept. 30, a 50 percent jump from the previous year, according to the SEC whistleblower program’s annual report to Congress. But only 68 tipsters got any money, compared to more than 100 in each of the previous two years.

Interviews with attorneys who participate in the program and a review of SEC decisions — along with court cases challenging some of those decisions — portray a program straining under the weight of its success. The lure of huge payouts, such as the $279 million that went to one tipster last year, with no growth in the program’s staffing or budget, may be taxing the SEC’s ability to keep up with the intent of the legislation authorizing it, attorneys say.

“They need more resources. The SEC is very good at evaluating whistleblower disclosures and prioritizing action, but surely when you have 18,000 tips, there’s a real risk that serious harm to investors will be missed,” Washington attorney Jason Zuckerman of Zuckerman Law said.

Written into the Dodd-Frank financial reform law of 2010, the whistleblower law was created to make sure tips about financial wrongdoing aren’t ignored, as they were before Bernie Madoff’s $64.8 billion Ponzi scheme unraveled.

At its core, the SEC says its whistleblower program is about money, both the amount recovered on behalf of defrauded investors and the amount awarded to those who helped to expose fraud. Since its 2010 inception, the program has recovered more than $6 billion and paid out nearly $2 billion to informants.

Last year it awarded nearly $600 million, although more than half came in just two awards. One was the $279 million to the tipster credited with uncovering a $1 billion fraud at Swedish telecom LM Ericsson. Another $104 million was shared by “seven whistleblowers, including foreign nationals … for reporting misconduct at an entity’s subsidiaries in three jurisdictions,” the agency said in its annual report.

“This is the most successful anti-corruption program ever established, and when the rules were developed in 2010-11, the way the program has grown was not anticipated,” said whistleblower attorney Stephen Kohn of Kohn, Kohn & Colapinto LLP. “So, there are numerous holes that need to be addressed by Congress and the agency’s own rule-making.”

Among them, Kohn said, are delays that can keep whistleblowers waiting years to be paid even after the SEC sanctions a company, the difficulty whistleblowers face when appealing an SEC decision, and the lack of information tipsters receive while their claims are processed.

Limited Information
As the program expands, the amount of information the SEC shares with the public keeps shrinking. The agency told Bloomberg Law it doesn’t track how many analysts who are not company insiders, such as short-sellers, received awards or how many awards went to claimants representing themselves. It also won’t release the number of attorneys working in the whistleblower office. All of that information has been included in previous annual reports.

“OWB includes in the annual report the statistics that we believe are the most useful metrics for understanding trends in the Whistleblower Program,” the agency said in response to written questions from Bloomberg Law. “We have modified which statistics we have included over time, and we anticipate revisiting which statistics to include in the future based on public feedback to our annual report.”

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