Former Company Office Claims $500K Whistleblower Award

On March 2, 2015, the Securities and Exchange Commission (“SEC”) announced a whistleblower award between $475,000 and $574,000 to a former company officer under the whistleblower program. The roughly half-million dollar award is the first time an award has been granted under the officer exception.

The SEC's whistleblower program was created under the Dodd-Frank Act of 2010 and began over three years ago. The program is meant to incentivize individuals to provide high quality, original information that results in enforcement actions that provide a fine or recovery for the SEC exceeding $1 million. Under the whistleblower rules, awards to whistleblowers who help the SEC range between 10% and 30% of the money recovered. Generally, this would exclude officers, directors, trustee, or partners who learn about a fraud through another employee reporting the misconduct, because the information must be derived from the claimant’s independent knowledge.

The former officer was eligible for the half-million dollar award based on an exception to the general rule which allows recovery when the officer reports the fraud more than 120 days after the company’s compliance personnel has knowledge of the fraud and fails to adequately address it.

The other exceptions to the general rule excluding officers to qualify for a whistleblower award, are; a) if the officer has a reasonable basis to believe that disclosure to the SEC is necessary to prevent the company from taking action that is likely to cause substantial harm to the entity or investors, and b) if the officer has a reasonable basis to believe the company in question is engaging in conduct that would hamper an investigation.

Further information regarding the actions reported, the company in violation, and the former officer who reported the fraud are unknown. The SEC does not publish additional information on these cases in order to keep the whistleblower’s identity confidential.

Under the SEC's whistleblower program, nearly $50 million has been awarded to 15 whistleblowers. The largest award to date was over $30 million surpassing the previous high of $14 million.

If you have a potential securities whistleblower action, contact the attorneys at Shepherd, Smith, Edwards & Kantas (“SSEK”) to discuss your situation in a free, no obligation consultation. The attorneys with SSEK represent whistleblowers nationwide using their over 100 years of experience in both securities law and the securities industry.

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The Securities and Exchange Commission (SEC) has passed the newly crafted whistleblower rule, which will allow the whistleblower to bypass having to report securities law violations to their employers first, according to a report in Investment News. This will allow employees to go straight to the SEC with violations without reporting them to their employer and still be able to collect the monetary award allowed by the Dodd Frank reform act.

Mary Schapiro, the SEC Chairman, said that “incentivizing, rather than requiring, internal reporting is more likely to encourage a strong internal compliance culture.” According to a report in the Washington Post, whistleblowers could receive as much as 10% to 30% of amounts over $1 million collected by the SEC in an investigation. With the risk of losing their jobs, destroying their lives, being sued and incurring huge legal expenses fighting litigation, whistleblowers must have the reward system incentives and the anti-retaliation provisions in order to encourage reporting wrongdoings, according to advocates.

Notwithstanding the fact that the newly crafted rule makes it easier for the whistleblower, it is never a good idea for any individual to attempt to handle this themselves. For more information concerning the rule and your rights, contact our securities law firm for a confidential no obligation consultation at 1-866-381-2434.

SEC Whistleblower Update

The SEC has released its required update on the Whistleblower program for 2012.  The results are that in 2012 alone, the SEC Whistleblower Office received over 3,000 properly filed tips.  The types of filings that were the most prevalent were (1) problems with corporate disclosures and financials which accounted for 18.2% of the tips received, (2) securities offering fraud which accounted for 15.5% of the tips, and (3) market manipulations, which accounted for 15.2% of the tips.

These tips were received from individuals from all 50 states in the U.S., the District of Columbia, Puerto Rico, and almost 50 other countries around the world.  The highest contributors were California with 17.4% of the tips, Florida with 8.1%, and New York 9.8%.  The largest international contributors to this group were the United Kingdom, with 74 tips, Canada with 46, India with 33, and China with 27.

Under the Dodd-Frank Act, the SEC was required to establish the Investor Protection Fund, which is the source of all payments of awards to eligible whistleblowers.  At the end of 2012, the Fund holds over $450 million, and paid out over the course of the year $45,739 in whistleblower awards.  Under the system, eligible whistleblowers have 90 days from the date that the SEC posts eligible actions on their website to file a claim.  One of the requirements of eligibility which has thus far limited the awards actually paid out is that the tip must lead to fines equal or greater than $1 million, and the whistleblower is only eligible to collect a portion of that amount which the SEC actually collects.
You can find the full report here.



Whistleblowers Protected Against a “very broad spectrum of adverse actions”

The Sarbanes-Oxley Act (SOX) protects employees who provide information about fraud and violations of the rules and regulations of the U.S. Securities and Exchange commission (SEC).

Specifically, Section 806 says that no company “may discharge, demote, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment” because of protected activity.

In recent years, SOX whistleblowers had to overcome a big hurdle when reporting adverse treatment for providing information about violations of SOX. Administrative law Judges required whistleblowers to show that they had experienced significant, tangible employment actions like a demotion, discharge or unfavorable reassignment because of their reporting.

Citing a concern with the “incautious application of the Title VII precedent to SOX whistleblower cases, the Department of Labor Administrative Review Board (ARB) recently placed SOX whistleblowers in their own category and clarified the standards that apply to adverse actions in SOX cases.

In Menendez v. Halliburton, ARB No. 09-002 (September 13, 2011) the rights afforded to SOX whistleblowers was clarified. Specifically, the ARB noted there was a “clear congressional intent to prohibit a very broad spectrum of adverse action against SOX whistleblowers.” Accordingly, the ARB held that adverse action against a SOX whistleblower means “unfavorable employment actions that are more than trivial, either as a single event or in a combination with other deliberate employer actions alleged” and that the actionable conduct is not limited to economic or employment related actions.


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