SEC payments on the rise since 2013 reach new height of $30 million plus – that’s 30 million reasons for whistleblowers to report violations as soon as possible
September 29 2014
On Monday, September 22, 2014, the Securities and Exchange Commission (SEC) announced an award to an anonymous foreign whistleblower of an estimated $30 million-plus payment that more than doubles the largest previous amount. The underlying securities case is undisclosed but stems back to at least before July
2010, when the Dodd-Frank Wall Street Reform and Consumer Protection Act enabled the SEC to reward whistleblowers who provide original information leading to enforcement actions exceeding $1 million in sanctions. Under the law, a whistleblower may walk away with between 10 and 30 percent of the sanctions that the SEC recovers from a case.
As staggering as the $30 million-plus award is in dollar value, the SEC cited in its redacted order that the award was downwardly adjusted due to the whistleblower’s “unreasonable” reporting delay. The order states that the whistleblower contended that s/he delayed reporting the violations to the SEC due to uncertainty that the SEC would act on the tip. The SEC rebuffed that explanation by stating that there is always a bit of uncertainty as to how law enforcement agencies will respond to a tip, but the whistleblower “could have reported the violations to other appropriate U.S. authorities” and not waited while “investors continued to suffer significant monetary injury that otherwise might have been avoided.” The SEC noted that because some of the tipster’s reporting delay occurred prior to the beginning of the SEC’s whistleblower award program, the SEC did not “apply the unreasonable delay consideration as severely” as it may have had the delay occurred entirely after the whistleblower award program was established. The order did not disclose how long the tipster waited after learning of the violations before reporting them to the SEC.
While the identities of the tipster and the target(s) of the case are shrouded in secrecy, the size of the award clearly signifies that the SEC is dead serious about incentivizing and awarding individuals for whistleblowing, and for blowing the whistle sooner than later.
As BakerHostetler previously reported in June and October 2013, there has been tremendous growth in the number and size of payments the SEC is making under its whistleblower award program, which does not have a dollar-value cap on the amount a whistleblower may receive. In the SEC’s inaugural award in 2012, one whistleblower received $50,000, with the possibility of additional future payments. In 2013, the SEC made four awards, including a mega award of $14 million. Monday’s record-breaking payment of more than $30 million is the ninth award the SEC has made in 2014 alone. The $30 million-plus payment is also the fourth award to a tipster outside the United States. The Director of the SEC’s Division of Enforcement, Andrew Ceresney, highlighted that fact by welcoming “[w]histleblowers from all over the world . . . to come forward with credible information about potential violations of the U.S. securities laws.”
Answering the government’s call, more domestic and international employees may be emboldened to report to the SEC instead of turning to internal corporate controls to report potential misconduct. For corporations, the government’s message to encourage early whistleblowing is clear. Equally clear must be the reply by corporations to employees and business partners that violations will not be tolerated. Corporations must implement up-to-date, robust compliance and training programs and encourage employees to utilize internal corporate reporting mechanisms instead of first running to the government with hopes of being the recipient of a new record-breaking award.
Originally posted by John Carney and Emerald Greywoode on lexology.com
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