Ringing the (Jingle) Bell: Whistleblower Program 2024 Recap

Whistleblower programs are the gifts that keep giving to enforcement agencies, driving a record number of cases, sanctions and awards across multiple agencies. In this ninth installment of Season's Readings, we revisit some of this year's most notable developments.

SEC: Bells on Bobtails Ring

The SEC's Office of the Whistleblower issued its Annual Report to Congress (Report) last month, noting that in fiscal year (FY) 2024, the Commission awarded more than $255 million in total whistleblower awards, the third-highest annual amount for its Whistleblower Program. Awards went to 47 individuals, two of whom split a single award of $98 million, one of the largest in program history. While these are impressive numbers, it is important to bear in mind that the SEC reports that it received more than 24,000 whistleblower tips in FY 2024, the most ever received in one year, but noted that more than 14,000 of the tips came from two individuals.

In the Report, the SEC noted significant enforcement activity to curb what it sees as restrictive agreements the agency views as unlawfully impeding or "chilling" would-be whistleblowers from communicating with the SEC in violation of Exchange Act Rule 21F-17(a). The SEC brought 11 such enforcement actions in FY 2024, which the Report noted were "more enforcement actions in this area than in any prior fiscal year and more than double the number brought in FY 2023." These actions have come with significant financial penalties for the targeted companies. In one sweep announced on Sept. 9, 2024, the SEC settled enforcement actions on a "no admit/no deny" basis with seven public companies that agreed to pay more than $3 million in combined penalties for allegedly violating Rule 21F-17 through restrictive language in employment and separation agreements. In 2024, the SEC expanded the list of potentially offending agreements and notes on its website that "Rule 21F-17 violations are not limited to language contained in severance agreements, non-disclosure agreements, or confidentiality agreements. Improperly restrictive language included in a company's internal policies, procedures, and guidance, such as codes of conduct, compliance manuals, training materials, and other such documents may also violate Rule 21F-17(a)."

The Report also highlighted whistleblower support prompting not only new enforcement actions, but also support to expand existing investigations, increase monetary sanctions, identify related schemes at other companies and for conduct self-reported by companies.

DOJ: Making Spirits Bright

The U.S. Department of Justice (DOJ), for its part, launched a new Corporate Whistleblower Awards Pilot Program in 2024 to intake and reward whistleblower referrals from individuals for specific conduct not already subject to another whistleblower program. Worthy of a full analysis on its own, our prior writeups on that program can be found here and here. This new program is described by DOJ officials as an effort to encourage investment in compliance and commitment to voluntary self-disclosure.

DOJ recently touted the program's success, noting that "[i]n the first few months of DOJ's whistleblower awards program, we've already received more than 250 tips, many of which appear to identify criminal conduct we didn't know about."

Whistleblower referrals can be a significant driver for enforcement actions and recoveries, a fact recognized in DOJ's February 2024 announcement regarding recoveries under another notable whistleblower regime, the False Claims Act (FCA). DOJ recorded $2.68 billion in recoveries stemming from a record-setting 543 settlements and judgments last year. Of that amount, $2.3 billion stemmed from whistleblower cases.

Under the FCA, whistleblowers (née relators) are entitled not only to alert the government to alleged misconduct, but also to file suit in the name of the government and conduct the action even if the government declines to intervene.

The provision that allows for this authority, known as the qui tam provision, found itself under siege this year when a district court in Florida held the provision unconstitutional. The court reasoned that the whistleblower "exercises significant authority, indeed core executive power, under the continuing position of relator but lacks proper appointment" by the president, thus violating the U.S. Constitution's Appointments Clause of Article II. The relator had been proceeding against the defendant after the government declined to intervene.

While the government and relator are appealing the decision, at least one U.S. Supreme Court Justice, Clarence Thomas, has already indicated in a dissenting opinion for another case that "there are substantial arguments that the qui tam device is inconsistent with Article II and that private relators may not represent the interests of the United States in litigation."

CFTC: What Fun It Is to Ride and Sing

The SEC and DOJ are not the only agencies with robust whistleblower programs. The Commodity Futures Trading Commission (CFTC) recently announced in its own annual report to Congress that it had received 1,744 whistleblower tips in 2024, with a record-setting 317 award applications and issuance of $42 million in award payments stemming from $162 million in sanctions. CFTC highlighted the value whistleblowers had on investigative economy, even when the whistleblower maintains culpability for the conduct or where the whistleblower would not otherwise qualify for the award, but for lack of action by the target company. Under CFTC rules, compliance officers typically do not qualify for awards, but in one case, the company's lack of response to the internal report resulted in an exemption for the whistleblower.

FinCEN: A Sleighing Song Tonight

At least one whistleblower program still has work to be done, and perhaps 2025 will be the year. The U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) Anti-Money Laundering (AML) whistleblower program has been in effect for a few years. It recently obtained backup support through the Anti-Money Laundering Whistleblower Improvement Act, which established a $300 million revolving fund (Financial Integrity Fund) to pay eligible whistleblowers and provides for the payment of awards between 10 to 30 percent to eligible whistleblowers.

Though remarks by the agency touted receipt of more than 270 tips, the Treasury Department has yet to issue guidance or rulemaking for the program. Budget requests to Congress by FinCEN show the agency is beefing up internal structures in anticipation of increased interest and participation in the program.

All Together Now

As federal agencies continue to increasingly prioritize and incentivize whistleblowers to come forward, companies must remain vigilant and ensure proper internal reporting systems are in place and that any agreements that may come under SEC scrutiny are scrubbed of prohibited restrictive language. Otherwise, companies may find themselves riding in a one-horse open sleigh all the way to the courthouse steps.