Under the False Claims Act (FCA) and various other federal and state anti-fraud statutes, whistleblowers may recover a certain percentage of any money recovered by the government as a result of the relator’s willingness to come forward. In many cases, whistleblowers choose to remain anonymous for fear of retaliation or other negative reactions within the industry or community. In one recent case, the relator won a record $14 million qui tam award under the Dodd-Frank Act, which was enacted in 2010 to protect against securities fraud. The case marked the highest whistleblower recovery under the Act to date, which began with a mere $500,000 award under its first case.
Details of record-breaking SEC case emerge
Reports of fraud under the Dodd-Frank Act must contain original, high-quality information not known to the general public. As such, many whistleblower reports are made by insiders working as either employees or colleagues of securities industry institutions, thereby allowing each to gather information not generally known by the average person.
The case referred to in this article is so top-secret, the SEC opted to not even reveal the name of the firm facing penalties. However, the SEC commented on the resolution by noting the whistleblower’s “information led to an SEC enforcement action that recovered substantial investor funds.” In support of the results, chair of the SEC Mary Jo White reiterated her enthusiasm for the Act and remained hopeful that this record-breaking award would continue to encourage other whistleblowers to come forward with information about securities fraud. The facts of this case are also remarkable in that it took the SEC just six months from the date it received the tip to bring an enforcement action against the unnamed securities firm.
Dodd-Frank Act and Qui Tam
The Dodd-Frank Act was placed on the books in the wake of America’s 2008 financial crisis, which was brought about by massive and extensive banking fraud – particularly in the housing industry. Under this Act, an individual may come forward with allegations of misconduct and fraud involving secured transactions (e.g., mortgage fraud) and, if successful, can receive between 10 and 30 percent of the government’s recovery. In comparison with the FCA, however, the Dodd-Frank Act places greater limitations on those who can recover and imposes stricter guidelines with regard to the type of information that can lead to an award.
First, under the FCA, a person can commence a lawsuit on their own and later join forces with the U.S. and state government, who may choose to intervene. Under Dodd-Frank, the individual may not commence a personal lawsuit and must work with the SEC to develop an appropriate enforcement action.
There are also strict requirements regarding the source of the information, and eligible information shall not have already been disseminated by the news media, a separate investigation, audits or judicial inquiry. Information relayed to the SEC must be original and a result of a voluntary submission not compelled by a formal or informal request from any state or federal government agency.
Do not fear the stringent rules of the Dodd-Frank Act
If this article causes you apprehension in your quest to reveal misconduct or fraudulent behavior, a whistleblower attorney can work with you to determine whether your information is ripe for submission to the SEC.