In light of the 2008 financial crisis – which was propelled primarily by corporate misconduct and serious Wall Street delinquency – the 2010 Dodd-Frank Act was created in order to not only police investor transgressions but to incentivize those with knowledge of possible securities fraud to come forward and report their information to confidential federal authorities. While the SEC’s whistleblower program does not get as much press and exposure as the False Claims Act, its rewards are often staggering, including a recent $30 million whistleblower award offered to a relator having come forward with information about corporate and financial fraud.
In keeping with its dedication to confidentiality and whistleblower protection, the SEC released very few details about the underlying issues giving rise to the reward – including the name of the relator or the details of the fraud. Nonetheless, the $30 million payday is twice as much as the next highest reward offered by the SEC, and it serves as a reminder that coming forward with information of fraud not only benefits unknowing investors, but can be exceptionally lucrative for the whistleblower as well.
How does the SEC whistleblower program work?
The SEC whistleblower program is modeled primarily after the False Claims Act and provides industry professionals the opportunity to confidentially report fraud within the securities industry. Once a report is made, SEC officials will conduct a preliminary review of the matter and make a decision – usually within 30 days – over whether to proceed with an investigation. If the facts warrant an investigation and possible whistleblower lawsuit, the corporation or securities firm involved in the allegation will receive notification from the SEC about an ongoing investigation. If the SEC action is successful, and yields a settlement of $1 million or greater, the whistleblower can receive up to 30 percent of this reward. The SEC reserves the right to increase or decrease a reward based on any of the following factors:
-Participation by the relator in the alleged misconduct
-Extent of cooperation by the relator
-Whether the relator reported the fraud internally
-Unreasonable delays in the investigation caused by the relator
-Significance and breadth of the alleged fraud
Much like the False Claims Act, relators under the SEC’s program must provide “original information,” which is defined by the SEC as “information derived from your independent knowledge (facts known to you that are not derived from publicly available sources) or independent analysis (evaluation of information that may be publicly available but which reveals information that is not generally known) that is not already known by us.”
One of the preeminent concerns held by many potential whistleblowers involves the potential for backlash from an employer, including demotion or termination. Applicable federal laws, including the Dodd-Frank Act and Sarbanes-Oxley Act, maintain anti-retaliation provisions, allowing terminated employees the opportunity to advance a separate cause of action to address wrongful treatment by an employer due to that employee’s decision to come forward. However, if you choose to report internally first, you must also report to the SEC within 120 days.
Contact Berger Montague P.C. today
If you are aware of possible fraud in the securities industry and would like to discuss your information with a confidential whistleblower attorney, please contact us right away.