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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.

Whistleblowers and outcomes of financial misrepresentation enforcement actions

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):  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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The Pickholz Law Offices has represented employees, officers, and others in SEC whistleblower cases involving financial institutions and public companies listed in the Fortune Top 10, Top 20, Top 50, Top 100, Top 500, and the Forbes Global 2000. We were the first law firm ever to win an SEC whistleblower award for a client on appeal to the full Commission in Washington. Inside Counsel magazine named this achievement one of the five key events of the SEC whistleblower program. Examples of the Firm’s SEC whistleblower cases are available here.

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The Pickholz Law Offices represents U.S. and international clients in securities and white collar cases. The Firm has helped whistleblowers report frauds to the SEC, CFTC, and IRS, and has defended clients in investigations by the SEC, CFTC, DOJ, FINRA, and other financial and securities enforcement regulators.

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Mr. Pickholz has been counsel in many high-profile cases. He was the first attorney ever to win an SEC whistleblower award on appeal to the Commission, which Inside Counsel magazine called one of the five key events in the history of the SEC whistleblower program. On the defense side, Mr. Pickholz has defended clients in the SEC’s COVID-19 investigations, the CFTC’s cryptocurrency cases, and a former US Senator, among others.

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