Public companies will see a new surge of legal action stemming from whistleblower complaints brought to the Securities and Exchange Commission (SEC) since passage of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, Bloomberg’s Corporate Counsel Weekly (CCW) reported.
That landmark Act, also commonly called the SEC Whistleblower Program, was designed and enacted to help prevent another fraud-based financial crisis from hitting the U.S., and introduced a new Office of the Whistleblower within the SEC. New whistleblower-friendly provisions encourage employees to report fraud by offering better financial incentives and stronger protections from exposure and retaliation.
According to SEC data, the whistleblower program is working. By enabling employees to become the eyes and ears for fraud detection within the corporate world, it is becoming more difficult for new fraud schemes to take root and old ones to remain hidden.
“What you are going to start seeing is many of these complaints, the 3,000 that have been filed in each of the last couple of years, are going to start coming to fruition, and that is when the awards will start happening,” a leading corporate attorney told lawyers attending the Northwestern University School of Law’s annual Ray Garrett Jr. Corporate and Securities Law Institute.
The success of the SEC whistleblower program is allowing new whistleblowers to move forward with complaints.
According to CCW, the SEC’s Office of the Whistleblower has registered 6,573 complaints since it was created in 2010. Three thousand of those complaints were filed in 2012. In 2013, the number of complaints rose to 3,238.
Under the SEC’s Office of the Whistleblower, individuals who provide strong, original information documenting a case of suspected fraud involving more than $1 million will receive between 10 percent and 30 percent of any recovery as an award.
In addition to the financial incentives, the SEC’s new whistleblower program offers better anti-retaliation provisions that shield the identity of the whistleblower.
The U.S. Justice Department is also on track to make record recoveries this year, thanks to whistleblower lawsuits filed under the federal False Claims Act, which allows private individuals to sue on behalf of the U.S. government and share up to 30 percent of any recovery.
The Justice Department recently reported that 2013 was the fourth consecutive year that whistleblower cases helped the government recover more than $3 billion in funds taken from government agencies and programs through fraudulent practices. The majority of those cases involved fraud against Medicare, Medicaid and other taxpayer-funded health care programs.
Bounties paid to whistleblowers who brought lawsuits under the False Claims Act exceeded $345 million in fiscal year 2013 alone. Those whistleblowers helped the federal government recover more than $3.8 billion in 2013.