Sunday Read: Billions of Reasons to Be Thankful
Government-backed whistleblower programs experienced another critical year in 2023, with enforcement actions that led to significant the recoveries of billions of dollars in ill-gotten gains and interest.
Just in time for Thanksgiving, the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) recently released their whistleblower program and enforcement reports, demonstrating their impact over the last fiscal year.
In this Sunday Read, the National Whistleblower Center (NWC) reviews the agencies’ programs and the key actions and takeaways from their respective reports. We also highlight some of the major and record-breaking resolutions from 2023.
The Legacy of the Dodd-Frank Act via SEC and CFTC
A brief overview of both agencies’ programs will help set the stage for their respective reports and findings.
The Dodd-Frank Wall Street Reform and Consumer Protection Act expanded the protections for whistleblowers and broadened the prohibitions against retaliation in the corporate sector. Following the passage of Dodd-Frank, the SEC implemented rules that enabled whistleblowers to take legal action against employers who have retaliated against whistleblowers.
This generally means that employers may not discharge, demote, suspend, harass, or in any way discriminate against an employee in the terms and conditions of employment who has reported conduct to the Commission that the employee reasonably believed violated the federal securities laws.
Through the SEC Whistleblower Program, qualified whistleblowers are entitled to monetary awards of 10–30% of the funds collected by the government in the case aided by the whistleblower’s disclosure. Whistleblowers may report anonymously to the Commission and tips are received from all around the globe.
The rewards are financed by monetary sanctions paid by securities law violators to the SEC. Money is not taken or withheld from harmed investors to pay whistleblower awards.
Similarly, the CTFC, through its Division of Enforcement, investigates violations of the Commodity Exchange Act (CEA) and the CFTC Regulations. The CEA was also created via Dodd-Frank. Violations can be certain actions or behavior in connection with futures, options, and swaps and in connection for a contract of sale of any commodity in interstate commerce. Examples of CEA violations include:
- Fraud, such as mishandling customer funds, Ponzi schemes,
- Market Manipulation, such as fictitious and non-competitive transactions,
- Trade Practice Violations, such as unauthorized swap transactions, inadequate oversight of traders, undercapitalization.
The funds recovered are redistributed back to the people, programs and organizations who have been wronged, with certain percentages allocated to the whistleblower. Furthermore, seized assets are often auctioned off by the government to sustain government-funded programs. The awards paid to whistleblowers present no cost to taxpayers or harmed investors.
Visit NWC’s resources on Dodd-Frank’s lasting impact, the SEC and CFTC.
SEC Fiscal Year 2023 Report
On Nov. 14, 2023 the SEC made its fiscal year 2023 report public. Its Whistleblower Program, which was created by Congress in 2010 and fully implemented in August 2011, issued whistleblower awards totaling nearly $600 million in the past fiscal year.
This amount was the most ever awarded in one year, highlighted by the record-breaking $279 million award announced in May 2023. Much of the information surrounding the case — such as the whistleblower’s identity and the depths of the impact on the penalized company — has remained confidential. The SEC said that while the whistleblower’s information did not prompt the opening of the Commission’s investigation, their information expanded the scope of misconduct charged.
NWC Founder and Chairman of the Board Stephen M. Kohn previously noted how the size of the award and the publicity it received can help discourage other malicious actors.
“Large rewards deter frauds,” said Kohn, a founder of the law firm Kohn, Kohn & Colapinto and author of Rules for Whistleblowers: A Handbook for Doing What’s Right. “Executives in the C-Suite need to understand that well-placed insiders are now incentivized to report fraud. The amount of this award is historic. But that is what is needed in the face of billion-dollar frauds, ripping off taxpayers, investors, and consumers.”
But the impressiveness of the statistics did not stop just at the total value. The SEC received more than 18,000 whistleblower tips in fiscal year 2023, a milestone that far exceeded the 12,300 whistleblower tips received in fiscal year 2022. The SEC received more than 40,000 tips, complaints, and referrals in total, a 13% increase over fiscal year 2022.
SEC.gov noted that it has awarded more than $1 billion to whistleblowers since its inception, and that enforcement actions from whistleblower tips have resulted in more than $6 billion in financial remedies.
“The investing public benefits from the Division of Enforcement’s work as a cop on the beat,” said SEC Chair Gary Gensler. “Last fiscal year’s results demonstrate yet again the Division’s effectiveness — working alongside colleagues throughout the agency — in following the facts and the law wherever they lead to hold wrongdoers accountable.”
CFTC Fiscal Year 2023 Report
On Nov. 7, 2023, the CFTC released its enforcement results for Fiscal Year 2023, noting it received 1,530 tips, the highest tally in its history.
The CFTC noted that its Whistleblower Program “continued to demonstrate its importance to the CFTC’s enforcement program as reflected in the leads generated, successful enforcement actions, and whistleblower awards.”
The agency granted seven applications for whistleblower awards, totaling approximately $16 million, for individuals who voluntarily provided original information that led to successful enforcement actions. Since the inception of the Whistleblower Program through FY 2023, the CFTC has issued 41 orders granting awards totaling almost $350 million. The total sanctions ordered in all whistleblower-related enforcement actions surpassed the $3 billion milestone in the past fiscal year.
On Oct. 31, 2023, CFTC Commissioner Christy Goldsmith Romero noted the significance of overall claims arising from digital assets.
“The majority of the tips received this year involved crypto — an area that continues to have pervasive fraud and other illegality,” said Romero, who is a former Inspector General. “Along with the efforts of the Whistleblower Office in this area, I also recognize the considerable efforts of the CFTC’s Office of Customer Education and Outreach, which has aimed to increase financial literacy, particularly related to crypto scams. With the rise of crypto, more retail customers have come under the CFTC’s jurisdiction, making even more critical the efforts of the CFTC’s Whistleblower Program and the Office of Customer Education and Outreach.”
The agency also made headlines in late 2022 when it charged several FTX leaders, including co-founder Samuel Bankman-Fried, for alleged fraudulent schemes involving digital asset commodities, including misappropriation and the illegal offering of digital asset derivatives to U.S. customers causing the loss of more than $8 billion in FTX customer assets.
CFTC Whistleblower Program in Jeopardy
Despite its growth and success, the CFTC’s whistleblower program has resulted in a funding crisis in recent years as a Congressionally-set cap on the fund used to finance the program cannot accommodate the amount of whistleblower awards being paid out. The amount of money which can be placed in the Consumer Protection Fund, which is entirely financed by sanctions paid by wrongdoers– not by taxpayers– is capped at $100 million.
NWC strongly advocates for a key amendment to the CEA. The Whistleblower Fund Improvement Act of 2023 provides the long-term fix needed. It offers a simple correction that bears no costs on taxpayers: it raises the cap on the Consumer Protection Fund to $300 million.
“The bipartisan Whistleblower Fund Improvement Act will ensure that the CFTC whistleblower program will not be a victim of its own success and can continue to help root out fraud in the U.S. derivatives markets,” wrote Kohn in an article calling for the passage of the bill.
Learn more about ways to save the CFTC Whistleblower Program.
Support NWC
NWC fights to bolster whistleblower programs, inform the public and employees in all sectors about available laws and protections. As a 501(c)(3) non-profit our awareness building work is made possible with the support of our generous donors. Please consider donating $50 today to help us continue to educate the public on the value of whistleblowing.
This story was written by Justin Smulison, a professional writer, podcaster, and event host based in New York.
