The Securities and Exchange Commission’s (SEC) record-breaking enforcement numbers reported for fiscal year 2016 highlight the importance of securities fraud whistleblowers in combatting misconduct and illegal activity.
The agency played hardball against securities fraud this year, implementing innovative data and analytics techniques to detect suspicious activity and investigate investment advisors, accountants, companies and their C-Suite leaders.
Whistleblowers across the globe aided in uncovering misconduct and contributed heavily to the overall success of the SEC’s fight against fraud.
SEC Achieves Record-Breaking Case Numbers, Whistleblowers Get $57 Million
By the 2016 fiscal year end date, September 30, the SEC reported a record 868 enforcement actions alleging financial reporting and other misconduct by companies, their executives, registrants and gatekeepers. This new single year high included the greatest number of cases against investment advisers or investment companies at 160, and the highest number of independent or standalone cases involving investment advisers or investment companies at 98.
The agency paid a record $57 million to whistleblowers this year, set a new record with 21 Foreign Corrupt Practices Act enforcement actions, and truped last year’s record 507 standalone or independent enforcement actions to 548 in fiscal year 2016. SEC judgments and orders totaled over $4 billion in disgorgement and penalties.
Among most impressive SEC enforcement actions for fiscal year 2016 were the $267 million enforcement action against J.P. Morgan subsidiaries for failing to disclose conflicts of interest, and the $415 million action against Merrill Lynch for misusing customer cash and putting customer securities at risk. Both J.P. Morgan and Merrill Lynch admitted wrongdoing.
“This has been a strong year for the Enforcement Division, with groundbreaking insider trading and FCPA cases and other important actions across the full spectrum of the securities laws,” said Andrew J. Ceresney, Director of the SEC’s Enforcement Division. “Through their hard work and steadfast dedication to our mission, the Division’s committed staff have helped protect investors and made our markets fairer and more reliable.”
Numerous First of Their Kind Actions
The SEC also brought a number of first-of-their-kind actions this year, including charges for failing to file Suspicious Activity Reports, auditor independence failures, violating the fiduciary duty for municipal advisors created by the 2010 Dodd-Frank Act and the municipal advisor antifraud provisions of the Dodd-Frank Act, and acting as an unregistered broker.
In addition, fiscal year 2016 boasts the first SEC federal jury trial victory against a municipality and one of its officers for violations of federal securities laws.
SEC Chair White: New Data Analytics Contribute to Success
In an October 11 press release, SEC Chair Mary Jo White attributed a large portion of the SEC’s success in fighting insider trading and other misconduct to the use of new data analytics techniques. “Over the last three years, we have changed the way we do business on the enforcement front by using new data analytics to uncover fraud, enhancing our ability to litigate tough cases, and expanding the playbook bringing novel and significant actions to better protect investors and our markets.”
SEC Whistleblower Program Pays Record Cash Awards
Securities professionals and others reporting suspected fraud were also recognized for contributing to the SECs success in fiscal year 2016. The SEC whistleblower program awarded 13 whistleblowers over $57 million, more than the five previous years combined.
This year held the program’s first stand-alone action for retaliation against a whistleblower. The SEC also charged four companies (Merrill Lynch, Anheuser-Busch, Health Net Inc. and BlueLinx Holdings Inc.) with attempting to impede whistleblowers from communicating with the SEC via confidentiality agreements.
This year marked the first time the SEC has offered a whistleblower award to an Australian employee. On September 20, 2016, the SEC paid a $3.75M whistleblower award to Australian BHP Billiton employee for reporting the company’s violations of the Foreign Corrupt Practices Act relating to the Beijing Olympics.
SEC whistleblowers are entitled to between 10% and 30% of any government recovery when sanctions exceed $1 million. In the past five years since its 2011 inception, the SEC’s whistleblower program has paid over $100 million in whistleblower awards. Whistleblower tips on securities fraud have aided in recovering over $500 million in financial remedies.
The SEC’s record-breaking success in fighting securities fraud for fiscal year 2016 highlights the success of the SEC whistleblower program as well as its administration and leadership while reinforcing the importance of securities fraud whistleblowers worldwide.