Why Reporting Accounting Fraud Will Lead to Future SEC Whistleblower Awards

A recent CNN documentary about the Enron accounting scandal is a stark reminder of the devastation that results when corporate officers cook the books – thousands of employees lost their jobs, individual investors and pension funds lost billions, and the stock market plummeted as investors lost confidence in the accuracy of public company accounting. Most employees that knew about the fraud failed to speak up due to fear of retaliation and a corporate culture characterized by greed and deception. If Enron employees had been protected against retaliation and incentivized to report accounting fraud to the SEC, the SEC may have learned about the fraudulent practices early enough to combat and remedy those practices.

Under the SEC Whistleblower Program, whistleblowers can submit tips anonymously to the SEC through an attorney and be eligible for an award for exposing any material violation of the federal securities laws. Since 2011, the SEC has issued more than $2.2 billion in awards to whistleblowers. The largest SEC whistleblower awards to date are:

$279 million (May 5, 2023)
$114 million (Oct. 22, 2020)
$110 million (Sept. 15, 2021)

This article discusses: 1) how whistleblowers can earn awards for reporting accounting fraud to the SEC; 2) the pervasiveness of accounting fraud at U.S. publicly traded companies; and 3) the SEC’s focus on accounting fraud which, in turn, will lead to future SEC whistleblower awards.

SEC Whistleblower Program

In response to the 2008 financial crisis, Congress passed the Dodd-Frank Act, which created the SEC Whistleblower Program. Under the program, the SEC is required to issue monetary awards to whistleblowers when they provide original information about violations of the federal securities laws (e.g., accounting fraud) that leads to successful SEC enforcement actions with monetary sanctions in excess of $1 million. Whistleblowers are eligible to receive an award of between 10% and 30% of the total monetary sanctions collected in a successful enforcement action. In certain circumstances, even officers, directors, auditors, and accountants may be eligible for awards under the program.

Since the inception of the SEC Whistleblower Program, whistleblower tips have enabled the SEC to bring successful enforcement actions resulting in more than $6 billion in monetary sanctions. In Fiscal Year (FY) 2024 alone, the SEC Office of the Whistleblower awarded more than $255 million to whistleblowers, which included a $98 million award. Also in FY 2024, the SEC received nearly 25,000 whistleblower tips, of which 2,609 related to Corporate Disclosures and Financials. As detailed below, recent data suggest that whistleblower tips related to accounting frauds will likely increase in the coming years due to rampant accounting fraud, violations, and errors.

Whistleblowers Needed: Accounting Fraud is Widespread

In October 2023, a paper titled How Pervasive is Corporate Fraud? estimated that “on average 10% of large publicly traded firms are committing securities fraud every year.” According to the paper:

Accounting violations are widespread: in an average year, 41% of companies misrepresent their financial reports, even when we ignore simple clerical errors. Fortunately, securities fraud is less pervasive. In an average year, 10% of all large public corporations commit (alleged) securities fraud, with a 95% confidence interval between 7 and 14%.

The paper’s findings about the pervasiveness of accounting violations were echoed in a December 2024 Financial Times article titled Accounting errors force US companies to pull statements in record numbers. According to the article:

The number of US companies forced to withdraw financial statements because of accounting errors has surged to a nine-year high, raising questions about why mistakes are going unnoticed by auditors.

In the first 10 months of this year, 140 public companies told investors that previous financial statements were unreliable and had to reissue them with corrected figures, according to data from Ideagen Audit Analytics. That is up from 122 in the same period last year and more than double the figure four years ago. So-called reissuance restatements cover the most serious accounting errors, either because of the size of the mistake or because an issue is of particular concern to investors.

Fortunately for investors, officers, directors, auditors, and accountants can be eligible for awards under the SEC Whistleblower Program, and whistleblower tips – especially from individuals with actual knowledge of the fraud – enable the SEC to quickly detect and halt accounting schemes.

Accounting Fraud in SEC Crosshairs

SEC enforcement actions against accounting violations and improper disclosures often lead to significant penalties. Eligible whistleblowers may receive awards of between 10% and 30% of the monetary sanctions collected in successful enforcement actions. Since 2020, some of the SEC’s largest enforcement actions were brought against companies engaged in accounting violations:

In 2020, General Electric agreed to pay a $200 million penalty for misleading investors by understating losses in its power and insurance businesses.
In 2021, The Kraft Heinz Company agreed to a $62 million penalty to settle charges that it engaged in a long-running expense management scheme that resulted in the restatement of several years of financial reporting
In 2021, Luckin Coffee agreed to pay a $180 million penalty for defrauding investors by materially misstating the company’s revenue, expenses, and net operating loss in an effort to falsely appear to achieve rapid growth and increased profitability and to meet the company’s earnings estimates.
In 2022, accounting firm Ernst & Young agreed to pay a $100 million penalty due to some employees cheating on CPA ethics exams and for misleading SEC investigators.
In 2024, UPS agreed to pay a $45 million penalty for misrepresenting its earnings by improperly valuing its UPS Freight business unit.

Whistleblower tips concerning similar accounting violations have led to, and will continue to lead to, significant whistleblower awards. For more information about reporting accounting fraud to the SEC and earning a whistleblower award, see the following articles:

SEC Whistleblower Attorneys

If you would like more information on reporting accounting fraud, contact an SEC Whistleblower Attorney at Zuckerman Law for a free, confidential consultation. Zuckerman Law is one of the nation’s leading law firms representing whistleblowers in whistleblower rewards and retaliation cases. For more information about SEC whistleblower awards, download our ebook: Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award.

Largest Accounting Fraud Scandals

The table below identifies some of the largest SEC enforcement actions against companies for accounting fraud:

Company	Monetary Sanctions	Violation
American Insurance Group (AIG)	$800 Million	Insurance company booked loans as revenue at an estimated $3.9 billion in accounting fraud and conspired to induce traders to inflate the prices of the stocks.
WorldCom	$750 Million	WorldCom inflated earnings by more than $11 billion and cost investors close to $200 billion. The deal reflects a civil penalty of $2.25 billion, which was reduced as part of the bankruptcy reorganization.
Fannie Mae	$350 Million	Fannie Mae “issued materially false and misleading financial statements in SEC filings and in various reports disseminated to investors.”
Time Warner	$300 Million	Time Warner engaged in securities fraud related to its accounting for online advertising revenue. It used “round-trip transactions” to inflate its online advertising revenue to hide the business slow down.
Qwest Communications	$250 Million	Qwest intentionally recognized over $3.8 billion in revenue and excluded $231 million in expenses that did not meet generally accepted accounting principles (GAAP) in an attempt to meet their predicted revenue and earnings projections.
Computer Associates	$225 Million	Computer Associates prematurely recognized over $3.3 billion in revenue by manipulating its quarter end cutoff dates to meet Wall Street’s quarterly earnings estimates. SEC’s Northeast Regional Office Director Schonfeld compared it to a team “that plays on after the final whistle has blown … until it had all the points it needed to make every quarter look like a win.”
Panasonic Corp	$143 Million	Panasonic overstated pre-tax and net income by prematurely recognizing more than $82 million in revenue by backdating an agreement with an airline. Additionally, Panasonic “lacked sufficient internal accounting controls and failed o make and keep accurate books and records in connection with purported consultant retained by PAC.”
Weatherford	$140 Million	Weatherford inflated earnings by using deceptive income tax accounting which included an international tax avoidance structure that reduced its effective tax rate (ETR) and tax expense. False financial statements inflated earnings by over $900 million.
Healthsouth	$100 Million	Shortly after Healthsouth went public in 1986, it began to “artificially inflate its earnings to meet Wall Street analysts’ expectations and maintain the market price.” Since 1999, it overstated its earnings by over $1.4 billion.
Lehman Brothers	$80 Million	Lehman intentionally manipulated their accounting reports through numerous Repo105 transactions that hid their actual debt. When they declared bankruptcy they were $615 billion in debt.