Whistleblower actions gaining momentum within the SEC

posted on:
June 26, 2014

author:
Kurt Niland

Whistleblowers who reported securities law violations to federal regulators received a total of $14 million in rewards in fiscal year 2013, making it a historic year for the U.S. Securities and Exchange Commission (SEC). The SEC expects recoveries to escalate significantly now that tough whistleblower laws and protections are in place.

The number of whistleblower tips and complaints brought to the SEC in 2013 swelled to 3,238 from 3,001 the year before, and there are solid indications that 2014’s numbers will exceed totals for the previous years.

“There are a good number of cases that are going to involve awards to whistleblowers in the many millions of dollars each,” former Securities and Exchange Commission Co-Chief of Enforcement George Canellos told the Wall Street Journal in September of last year.

Tom Sporkin, former head of the SEC’s office of market intelligence, told Wall Street Journal that, “Those prognostications and other signs mean that 2014 will likely be a bigger year for bounties than 2013.”

The SEC’s Office of the Whistleblower was born from the financial crisis of 2007-2008, after an economic collapse that nearly drove the country into a depression triggered passage of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

Before Dodd-Frank established the SEC’s Office of the Whistleblower, whistleblower tips and complaints often went unheeded while whistleblowers themselves risked retaliatory backlash in the form of ruined careers and tarnished reputations.

Now, under the SEC’s whistleblower program, individuals who bring high-quality, original information to the agency that results in a recovery of $1 million or more are eligible for a reward of 10-30 percent of the total recovery.

The Dodd-Frank laws are also designed to compel corporate insiders close to the wrongdoing to provide better quality and more timely information, which makes it easier for the SEC to pursue cases. Quicker prosecution of fraud cases may also spare many people from falling victim to financial fraud.

Moreover, a Commission rule adopted in 2011 under the Dodd-Frank Act authorized the SEC to bring enforcement actions against companies that retaliate against whistleblowers who provide information about securities law violations to the agency.

This month, the SEC settled its first-ever whistleblower retaliation case under those new anti-retaliation laws. In that case, Paradigm Capital Management of Albany, N.Y., and its owner agreed to pay $2.2 million to settle claims that they took a series of retaliatory actions against an employee for reporting violations and misconduct within the company to the SEC.

News of the Paradigm anti-retaliation case could give potential whistleblowers the extra bit of courage they need to step forward with information of wrongdoing. Each subsequent example of SEC whistleblower rewards and protection may provide the agency with added momentum in its fight against securities fraud, misconduct, and other wrongdoing.

“While the amounts paid are significant, the bigger story is the untold numbers of current and future investors who were shielded from harm thanks to the information and cooperation provided by whistleblowers,” Sean McKessy, SEC Office of the Whistleblower head, said in a statement.

Beasley Allen attorneys are familiar with SEC Whistleblower laws, as well as other whistleblower laws pertaining to the federal False Claims Act and its qui tam provisions. If you have a question about whistleblower laws and protections, contact Lance Gould, Larry Golston, Archie Grubb or Andrew Brashier.

Sources:

Securities and Exchange Commission
Wall Street Journal

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