The Securities and Exchange Commission (SEC) filed an amended complaint against Collectors Café, an online auction platform, and its CEO Mykalai Kontilai, adding allegations that they illegally tried to bar investors from reporting misconduct to the government.
The amended complaint demonstrates the scope of the SEC’s whistleblower protections, which historically have centered on employees who report illegal activity within their own companies or who have first-hand knowledge of misconduct within other companies.
The SEC previously charged Collectors Café and Mr. Kontilai with making a fraudulent $23 million securities offering based on false statements to investors and misappropriating more than $6 million of investor proceeds.
According to the SEC, the amended complaint alleges that the defendants tried to prevent investors from reporting wrongdoing to the SEC by having them sign agreements that conditioned the return of investor money on staying silent.
In this arrangement, whistleblowers who turned to law enforcement with allegations of securities violations or other wrongdoing risked losing their returns on investment.
The SEC also pointed to a particularly egregious attempt by the defendants to silence whistleblowers. The amended lawsuit explains that in one instance, “Collectors Café and Kontilai even went so far as to file a lawsuit claiming that the victims breached the confidentiality provision by communicating with SEC staff about possible securities law violations.”
Jane Norberg, head of the SEC’s whistleblower office, said in a statement that “the SEC’s whistleblower protections broadly protect not just employees, but anyone who seeks to report potential securities law violations to the commission.”
Although it’s against the law for companies to attempt to block anyone from communicating with government authorities, such violations do happen.
Law.com points out that in January 2017, the SEC reached a $500,000 agreement with Home Street Inc. resolving allegations that the financial services company made former employees waive their right to receive a whistleblower award or risk losing their severance payments and other post-employment benefits.
In 2016, the agency reached a $6 million settlement with Anheuser-Busch InBev resolving claims that the company used illegal bribes to build its business in India. The company then chilled a whistleblower with a separation agreement that effectively stopped the informant from cooperating with the SEC’s investigation.
Commissioner Norberg said at a recent conference in Washington DC that these settlements seemed to be effective in conveying the right message to companies. The agency doesn’t see language in separation agreements that deter employees from communicating with the SEC with the frequency it used to.
“I really do think everyone did a good job in taking a hard look at these agreements and figuring out what was the appropriate language,” she said, according to Law.com. “That said, we do still see some, and we are still looking at them.”
If you are aware of fraud being committed against the federal or state governments, you could be rewarded for reporting the fraud. If you have any questions about whether you qualify as a whistleblower, contact a lawyer at Beasley Allen for a free and confidential evaluation of your claim. Lawyers on our whistleblower litigation team are Larry Golston, Lance Gould, Paul Evans, Leslie Pescia, Leon Hampton, Tyner Helms and Lauren Miles.
Additional source: Securities and Exchange Commission