Study Finds SEC Whistleblower Help Leads To Significantly
Larger Financial Penalties

The Social Science Research Network (SSRN) has posted a report
studying the effects that DOJ and SEC whistleblowers have had
on financial misrepresentation actions.*  (The “Study”.)  The
Study finds a connection between whistleblower assistance and
“larger monetary penalties for the targeted firms”.  It also
finds that
SEC whistleblower help
increases the likelihood of the SEC imposing monetary
sanctions on the wrongdoers.  The Study was conducted by
professors at four different universities.

The current Study on the SSRN website seems to be an updated
version of a 2014 study by the same authors.  I discussed that
earlier study in a post back on November 7, 2014.  You can
read my post titled “Study Finds DOJ and SEC Whistleblower
Help Leads to $20+ Billion More in Judgments” by clicking
here.  (You might also be interested in my post about a joint
report by the NYU Pollack Center for Law & Business and
Cornerstone Research, examining the amounts of SEC settlements
with public companies, which you can find
here.

SEC Whistleblowers Help The SEC Discover Frauds Faster

The Study finds that the time it takes for the SEC to discover
a fraud and begin a regulatory enforcement action “is shorter
when whistleblowers are involved”.  (Study, pages 5, 32.)  The
“findings are consistent with whistleblower involvement being
associated with more rapid discovery of financial
misconduct.”  (Study, pages 26, 32.)

SEC Whistleblower Help Increases The Likelihood Of The SEC
Imposing Monetary Sanctions

According to the Study, SEC whistleblower help during “the
enforcement process is associated with an 8.5% increase in the
likelihood that the SEC imposes monetary sanctions on the
firm.”  (Study, pages 4, 26.)

Whistleblower Help Leads To Millions More In Financial
Penalties

The professors also conclude “that whistleblower involvement
is associated with larger monetary penalties for the targeted
firms”.  (Study, pages 4, 31.)

They found that the mean (median) penalty imposed on companies
in non-whistleblower cases was $5.09 million.  By contrast,
where whistleblowers were involved, that figure jumped to
$74.21 million.  (Study, page 20, and page 44, Table 3 Panel
A.)  That is an increase of over 14.5x, or more than 1,350%.

In addition to the companies themselves, the authors state
“that monetary penalties for culpable employees are
significantly larger with whistleblower involvement.”  (Study,
pages 21, 31-32.)

The Study revealed that the mean penalty against culpable
employees, without whistleblower help, was $23.54 million. 
With whistleblower help, the mean climbed to $61.97 million. 
(Study, page 20, and page 44, Table 3 Panel A.)

Whistleblower Help Is Predicted To Increase Penalties By Tens
of Millions Of Dollars

The professors make some predictions based on their findings,
although they qualify that their predictions “should be
interpreted with caution”.

According to the Study, “In terms of economic significance, we
find that whistleblowers are associated with an increase in
predicted firm penalties from $8.7 million (without a
whistleblower) to $30.5 million (with a whistleblower)”. 
(Study, page 22 n.17.)

In addition to companies themselves, the authors predict an
increase in penalties imposed on culpable employees, from
$22.8 million without a whistleblower, to $69.4 million with a
whistleblower.  (Study, page 22, n.17.)

SEC Whistleblowers Perform An Important Public Service

The Study’s results confirm that assistance from SEC
whistleblowers can help the Commission to spot frauds and
bring enforcement actions faster, stop the schemes earlier,
and prevent more innocent people from being harmed.

The results also confirm that SEC whistleblower help,
especially from someone who brings a fraud to light before the
SEC knows about it, can result in significantly greater
financial penalties being imposed against the wrongdoers.  In
turn, this could lead to a significantly greater
SEC whistleblower award
for the whistleblower.

According to the authors of the Study, “these findings suggest
whistleblowers are a valuable source of information for
regulators in investigating and prosecuting financial
misrepresentations.”  (Study, page 5.)

The Study and its conclusions should be extremely encouraging
for someone considering whether to participate in the
SEC whistleblower program
and his or her
SEC whistleblower lawyer.

————————————————-

* Call, Andrew C., Martin, Gerald S., Sharp, Nathan Y., and
Wilde, Jaron H., “Whistleblowers and Outcomes of Financial
Misrepresentation Enforcement Actions” (last revised Apr. 26,
2017).  Available at Social Science Research Network (SSRN):
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2506418.  The most recent version of the Study appears to have been
accepted for publication in an upcoming edition of the
Journal of Accounting Research.

* * *

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