Securities and Commodities Fraud
The SEC Whistleblower Statute
In response to the global financial crisis in 2008, Congress passed financial reform legislation known as the Dodd-Frank Act in 2010, which came into effect in August 2011. In addition to the sweeping new financial regulations, Section 922 of the Dodd-Frank Act contained whistleblower provisions to encourage and incentivize any natural person (not companies or entities) to report securities violations and expanded the protections for whistleblowers, which were in place under the Sarbanes-Oxley Act.
To initiate a suit, the whistleblower must complete and file a Form TCR (i.e., a Tip, Complaint or Referral Form), available on the SEC website, detailing the violations and providing evidence and facts. If the SEC recovers money using the information the whistleblower provided, the whistleblower may apply for an award and stands to recover a portion of the money.
What is SEC Fraud?
Section 922 of the Dodd-Frank Act or the SEC Whistleblower Act provides rewards to whistleblowers for exposing violations of the securities laws (note, unlike the False Claims Act, these frauds do not have to relate to government money). Types of fraud that can be pursued under this statute include: bribery of foreign officials in violation of the Foreign Corrupt Practices Act; and securities law violations that create an unfair playing field for the investing public.
The SEC Whistleblower Act Originality Requirement: Who Can be a Whistleblower?
The information provided to the SEC must be “original.” This requirement is met when the information is:
- Derived from the independent knowledge or analysis of a whistleblower;
- Not known to the SEC from any other source; and
- Not exclusively derived from an allegation made in a judicial administrative hearing, government report, hearing, audit, or investigation, or from the news media, unless the whistleblower is a source of the information.
The SEC Whistleblower Act Awards: Why Would a Person Want to be a Whistleblower?
In addition to performing a public service by alerting the government to possible fraud, the SEC Whistleblower Act provides a monetary incentive for people who report information that results in a recovery for the government. In order for whistleblowers to be eligible for an award, the information provided must result in a monetary recovery that exceeds $1 million and whistleblowers are entitled to anywhere from 10% to 30% of the recovered amount.
However, certain individuals are barred from receiving a reward. If an individual has a legal or contractual duty with the government to report information to the SEC, then he/she would be precluded from receiving a reward. Additionally, the SEC will generally not grant rewards to attorneys, accountants, personnel with compliance-related duties, foreign officials, or whistleblowers who obtained information through commission of a crime.
The SEC Whistleblower Act Anti-Retaliation Protections: Are There Protections for Whistleblowers?
The SEC Whistleblower Act has strong anti-retaliation provisions that make retaliation its own right of action for employees who have been retaliated against, without regard to any other allegations of securities fraud violations. Additionally, whistleblowers are protected by these provisions if they report a “facially plausible” relationship to a securities law violation, even if it does not rise to the level of a “material” violation. The rationale behind adopting this liberal approach is to incentivize whistleblowers to come forward, rather than screen themselves out because they are unsure about securities law.
The SEC Whistleblower Act provides special protection for financial services employees who might suffer retaliation, applying a wide scope of coverage over organizations that have any connection to providing consumer financial products or services. Remedies include reinstatement, back pay, compensatory damages, as well as attorneys’ fees and litigation costs.
How Do You Report SEC Fraud?
Whistleblowers must complete a Form TCR disclosing all relevant facts and evidence of the alleged fraud and submit it to the SEC if they want to be eligible for an award under the statute. It generally pays to engage an experienced qui tam attorney to complete this form with all of the detail that the SEC will expect and then to have that attorney represent you throughout the SEC Whistleblower Action.
Contact a Whistleblower Lawyer
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