By Adam Turteltaub
Recently the FCPA blog ran an interesting piece about a $500,000 payout to a whistleblower. It reported that the SEC has now awarded $154 million to 44 whistleblowers. It’s a seemingly very considerable sum, which works out to an average of $3.5 million per successful whistleblower.
It led me, though, to dig a bit deeper. According to the SEC Officer of the Whistleblower 2016 Annual Report to Congress, the SEC has received 18,334 tips since the program was started back in 2011. To give a sense of how many that is, hotline provider Navex Global, according to its 2016 annual benchmarking report, took 867,551 reports for all of its clients in the previous year. That means that the SEC office had about 2% as many reports in its entire life, as Navex takes in for its clients in one year, and Navex isn’t a monopoly.
If we divide the number of tips leading to a payout (44) by the tips received (18,334), then we see that roughly .2% of the tips received, or 1 in abut 416, have led to a whistleblower receiving a payout.
Depending on how you look at it, that’s either good or bad odds. Navex reports a substantiation rate of all claims at 40%. So, by that standard the SEC numbers look bad, although I realize that just because there wasn’t a payout doesn’t mean that the claim wasn’t substantiated.
However, the numbers do look good compared to the odds of winning the Powerball, which are about 1 in 292.2 million. If the odds of winning $3.5 million were 416 to 1, most any gambler would take them.
The problem, though, is the price of the ticket. Unlike in the lottery where your bet is a dollar or two, when you blow the whistle you’re potentially putting your job, career, family life and health all on the line.
That’s a lot to bet.
And that’s just the start, for a whistleblower who is able to remain anonymous, he or she is still forced to live a double life. On the one hand being a good, dutiful employee, and on the other hand having to pretend you didn’t report the company, and maybe providing the SEC with evidence to use against it.
For the whistleblower who’s name becomes public, the road is exponentially tougher.
Either way, it’s not easy, and every qui tam attorney I’ve spoken to says that very, very few whistleblowers do it for the money. Instead, they are motivated by a desire to see a wrong rectified.
What this all indicates to me is several things. First, for all the fears expressed about the SEC whistleblower program leading to a flood of calls and investigations, the numbers just don’t bear that out. Second, for those who blow the whistle to the SEC, the potential for a significant reward is there.
Third, when measured against the cost, there remains a very strong incentive to either raise the issue internally or keep your mouth shut.
Finally, the numbers show the need for strong compliance programs that prevent problems from happening and deal with the issues quickly and effectively when they come up.
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