SEC Whistleblower Program Improved With More Work Ahead, IG Says

The Securities and Exchange Commission’s whistleblower program still faces steep backlogs as the amount of tips explode, but it has improved at its basic task of making sure helpful tipsters get the money they deserve, an Inspector General’s audit concluded.

The report released Tuesday noted that tipsters still wait, on average, more than a year to get a final determination of awards and amounts even after their information has been used to bring fines, convictions and settlements against offending companies. That compares with an average wait of nearly four years before late 2019, the report said.

Those delays are on top of the staff’s lengthy investigations, which records show can last up to a decade.

Congress created the whistleblower program in 2010 in the wake of the Bernie Madoff $64 billion Ponzi scheme. The SEC ignored repeated warnings about Madoff for more than a decade. According to the audit, since the program began in 2011, “information received from whistleblowers has resulted in orders for $6.3 billion in total monetary sanctions, of which more than $1.5 billion has been, or is scheduled to be, returned to (harmed) investors.”

The agency has also given more than $1.3 billion to more than 300 whistleblowers, the audit said.

The audit said the agency, which receives more than 12,000 whistleblower tips, is starting to chip away at the huge backlog of cases.

A new practice begun in January 2022 is reducing the time to process awards after investigations are complete, the report said. The rules have prodded SEC investigative staff to more quickly inform the Office of the Whistleblower about which tipsters provided the most information and are most worthy of being paid. Enforcement staff are also required to fill out templates containing information on their investigation and the sources used. Previously, the enforcement staff and OWB loosely conferred on who should get paid, with no set deadlines.

Still, the audit found that enforcement staff hasn’t always followed the new guidelines, leading to continuing delays.

“For example, despite the efforts made, it took between 91 and 383 days for OWB to obtain 7 draft declarations (stating which whistleblowers contributed)” on claims the auditors reviewed, according to the report. “Although OWB has achieved efficiencies through its declaration initiative, further improvements can be made to ensure related processes are implemented consistently.”

The SEC said in a statement that, “We appreciate the work of the Office of the Inspector General and look forward to reviewing its report and recommendations.”

Members of the IG’s audit team didn’t interview any whistleblowers or their attorneys who have said the agency unreasonably delaysdecisions or refuses to explain its decision making process. It also didn’t address allegations in court filings and from attorneys that the program is operating in secrecy far beyond its mandate to protect the identity of whistleblowers.

The audit did focus on what the IG called a lack of controls over the data it handles and the process of determining awards. The five-member claims review panel charged with reviewing claims has sometimes recommended multi-million award payouts when less than half of its members were present, according to the report.

“Because the Commission relies on the CRS with respect to whistleblower awards, including denials and approvals of multi-million dollar awards, we believe a lack of guidelines, rules, and standards governing CRS actions and decisions increases the risk to the Commission’s Final Orders,” the auditors stated.

The audit also found that the agency has trouble accurately tracking and recording key data, particularly when information is manually entered.

“As a result, OWB continues to risk inaccurate and incomplete reporting of claims tracking data and, in some cases, delays in key whistleblower program processes,” the report concluded.