Critics of whistleblower award laws commonly claim that whistleblower awards will lead to frivolous and speculative complaints aimed at damaging the reputation of individuals or companies. However, a close look at the data around major whistleblower award laws shows that this is an unfounded critique that has yet to occur as the U.S. has expanded whistleblower award programs.

An extensive research paper published by leading whistleblower attorney Stephen M. Kohn and senior law clerk Melissa Revuelta of whistleblower law firm Kohn, Kohn & Colapinto provides ample evidence against seven of the major arguments levied against whistleblower awards in a 2014 report by the Bank of England Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). Kohn and Revuelta’s paper, Revisiting The Arguments Against Whistleblower Award Laws: It’s Time for a Change, empirically analyzes the major criticisms of the whistleblower award provisions of the United States Dodd-Frank Act. The decades of data compiled for the paper prove that rewarding whistleblowers is an extremely effective way to incentivize insiders to come forward and boost enforcement efforts.

One major critique the paper rebuts is the FCA/PCA claim that “Financial incentives might lead to more approaches from opportunist and uniformed parties passing on speculative rumors.” Multiple international reports have cited this concern, including one that claims, “The reputation of innocent parties could be unfairly damaged as a result [of offering whistleblower awards].”

The data around the United States’ whistleblower award laws shows that these concerns are not well-founded and are simply consistent with harmful stereotypes designed to discourage whistleblowers.

The SEC Whistleblower Program

Since it was established with the passage of the Dodd-Frank Act in 2010, the U.S. Securities and Exchange Commission (SEC) Whistleblower Program has offered monetary awards to individuals who voluntarily provide original information about securities law violations.

In 2020, the SEC implemented Rule 21F-8(e) in response to concerns surrounding the potential negative implications of mandating a reward for whistleblowers. The rule states:

If the Government does not proceed with the action and the person bringing the action conducts the action, the court may award to the defendant its reasonable attorneys’ fees and expenses if the defendant prevails in the action and the court finds that the claim of the person bringing the action was clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment.

If the Commission finds that an individual has submitted three or more frivolous award claims, they can be permanently banned from the whistleblower program.

In the history of the whistleblower program, there have been five instances of disqualification due to serial inaccurate filings. The Commission banned two individuals in 2021 under Rule 21F-8(e). Both claimants (one barred on September 14, 2021, and one on September 28, 2021) submitted hundreds of claims and would withdraw and resubmit the same colorless tips. Both of these bans were noted in the 2021 Annual Report to Congress on the Dodd-Frank Whistleblower Program.

The other three bans are noted in the denial orders listed under the Final Orders for Whistleblower Award Determinations section of the SEC website. The OWB reports for 2022 and 2023 do not provide any updates on actions under Rule 21F-8(e). Finding the three additional barred individuals required going through every denial order since fiscal year 2021. There were two claims barred under Rule 21F-8(e) in 2022, one on September 20, 2022 and one on November 18, 2022. The latter claimant submitted over 1,600 award applications, none of which were related to any of the claimed Covered Actions. The last individual’s claims were barred under Rule 21F-8(e) on February 9, 2024. There is no evidence in the public record that these barred individuals’ frivolous disclosures were used to smear an individual or company’s reputation.

Since FY 2021, the SEC has received more than 42,000 separate whistleblower tips, granted more than 260 whistleblower awards to qualified whistleblowers, and denied numerous applicants based on the merits of their disclosure. In light of the size of the program, the five individuals barred under Rule 21F-8(e) do not suggest that the program has led to speculative complaints meant to damage the reputation of innocent parties.

The False Claims Act

Since its modernization in 1986, the False Claims Act has offered monetary awards to whistleblowers reporting government contracting fraud.

In order to combat the possibility of frivolous complaints, Congress created a provision under the False Claims Act allowing a defendant to motion for their attorneys’ fees to be paid by the whistleblower that pursued a frivolous case against any person or company in federal court. 31 U.S.C. § 3730(d)(4) states:

If the Government does not proceed with the action and the person bringing the action conducts the action, the court may award to the defendant its reasonable s’s’ fees and expenses if the defendant prevails in the action and the court finds that the claim of the person bringing the action was clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment.

A search of the Lexis legal database revealed only 121 cases where a defendant sought reverse fees, alleging that the complaint was issued for the primary purpose of harassment.^[1] Of these 121 cases, only 43 granted attorneys’ fees. Between FY 1987 and FY 2023, a total of 15,964 cases were filed by whistleblowers under the False Claims Act. Only 121 cases, 0.0076%, filed for attorneys fees under 31 USCS § 3730. Of those, only 43, 0.0027%, found that the suit was filed for the purpose of harassment.

Conclusion

The argument that whistleblowers file claims for the purpose of destroying someone’s reputation is rooted in a fabricated ideology and is refuted empirically by this data. Other legal avenues may offer pathways for dishonest or disgruntled individuals to try and smear the reputation of an individual or company, Still, the whistleblower provisions of Dodd-Frank and the FCA are not among them. All False Claims Act qui tam suits are filed under oath, and SEC whistleblowers are sworn to uphold the truth.

As SEC Chair Gary Gensler explained, “The assistance that whistleblowers provide is crucial to the SEC's ability to enforce the rules of the road for our capital markets.” Whistleblowers are courageous individuals who stand up for truth and accountability, combating corruption and protecting the cornerstones of our democracy. They are not frivolous, vexatious, or harassers.