An SEC whistleblower who demonstrated “extraordinary” actions in reporting securities violations to federal authorities helped the Securities and Exchange Commission (SEC) stop a case of fraud it likely wouldn’t have been able to otherwise, the agency said.
“The whistleblower’s actions in this matter were extraordinary,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower, in a statement. “The whistleblower expeditiously reported the information to the Commission and provided valuable assistance despite implied threats from the wrongdoers.”
The SEC does not release any specific information about the whistleblower cases it handles in order to protect the identities of its informants, who often risk their careers and face retaliation by standing up against violations, fraud and other wrongdoing.
The case also demonstrates the importance of rewarding whistleblowers appropriately for the help they provide and the risks they take. Whistleblowers whose tips and assistance result in a successful enforcement action receive 10% to 30% of the money collected above $1 million.
The whistleblower in this case received an award of $2 million. Last month, the SEC announced it had awarded $2.62 million to four informants who provided tips and investigative support in three different cases that resulted in successful enforcement actions.
Weakening whistleblower protections and incentives
The SEC’s Office of the Whistleblower was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to combat widespread financial fraud that led to the economic crisis of 2008-2009. The program issued its first whistleblower award in 2012. Since then, the SEC has awarded more than $398 million to 78 individuals.
In its 10-year history, the SEC’s whistleblower program has ordered violators to pay more than $2 billion in total monetary sanctions. Illegal gains and interest accounted for more than $1 billion of those sanctions, of which almost $500 million has been returned to harmed investors, the agency noted in its last annual whistleblower report.
In recent years, however, regulatory rollbacks have threatened the strengths on which the whistleblower program is built, mostly by weakening whistleblower protections and awards.
In 2018, The U.S. Supreme Court handed down a decision in Digital Realty v. Somers that restricted the anti-retaliation measures afforded to certain whistleblowers under Dodd-Frank.
More recently, the Trump Administration has sought to limit awards in cases that result in more than $100 million in sanctions. Under those proposed changes, whistleblowers who help the SEC in the largest fraud cases would receive 10% of the total sanctions or $30 million, whichever is larger.
Ponzi schemes surging again
According to Quartz, “The proposal follows other Trump administration rollbacks of legislation passed in response to the 2008 financial crisis, much of which was designed to safeguard financial markets but is seen as cumbersome by Republicans and many on Wall Street.”
Considering the Trump Administration’s sweeping regulatory rollbacks, it’s no wonder that state and federal authorities last year uncovered 60 Ponzi schemes totaling about $3.25 billion in investor funds — the highest amount in 10 years. Market analysts are warning that financial fraud could be building to another “investor massacre,” according to a February CNBC report.
The surge in Ponzi schemes and other investment fraud should send a clear signal to the SEC that it should be strengthening whistleblower protections and awards, not undermining them.
If you have any questions about whether you qualify as a whistleblower, contact one of the lawyers on our firm’s Whistleblower Litigation Team for a free and confidential evaluation of your claim. Beasley Allen lawyers Larry Golston, Lance Gould, Paul Evans, Leslie Pescia, Leon Hampton, Tyner Helms and Lauren Miles are working in this area of law known as “qui tam” cases. A lawyer on the team will be glad to discuss the potential claim with you either in person or by phone.