Posts Tagged ‘SEC’

Whistleblowers Make a Difference, Study Finds

Whistleblower Case StudyA study released last week by the Social Science Research Network proves what False Claims Act attorneys have known all along: whistleblowers matter.

Four researchers evaluated penalties for misrepresentation from the Department of Justice and the Securities & Exchange Commission from 1978 to 2012.  The researchers controlled several factors and then compared cases that involved whistleblowers and those that did not. Read More…

 

SEC Announces Additional Reward for First Whistleblower

Washington D.C., April 4, 2014 — The Securities and Exchange Commission has announced that the whistleblower who received the first award under the agency’s new whistleblower program will receive an additional $150,000 payout after the SEC collected additional funds in the case.

The whistleblower, who the SEC did not identify in order to protect confidentiality, has now been awarded a total of nearly $200,000 since the award was announced on Aug. 21, 2012. The award recipient helped the SEC stop a multi-million dollar fraud by providing documents and other significant information that allowed its investigation to move at an accelerated pace and prevent the fraud from ensnaring additional victims.

The award represents 30 percent of the amount collected in the SEC enforcement action against the perpetrators of the scheme, the maximum percentage payout allowed under the law. The additional payout comes after the SEC collected an additional $500,000 from one of the defendants in the case.

“This latest payment shows that the SEC’s aggressive collection efforts pay dividends not only for harmed investors but also for whistleblowers,” said Sean McKessy, chief of the SEC’s Whistleblower Office. “As we collect additional funds from securities law violators, we can increase the payouts to whistleblowers.”

The SEC expects to collect additional money from defendants in this case as some are making payments under a periodic payment schedule ordered by the court.

The 2010 Dodd-Frank Act authorized the whistleblower program to reward individuals who offer high-quality original information that leads to an SEC enforcement action in which more than $1 million in sanctions is ordered. Awards can range from 10 percent to 30 percent of the money collected. The Dodd-Frank Act included enhanced anti-retaliation employment protections for whistleblowers and provisions to protect their identity. The law specifies that the SEC cannot disclose any information, including information the whistleblower provided to the SEC, which could reasonably be expected to directly or indirectly reveal a whistleblower’s identity.

For more information about the whistleblower program and how to report a tip, visit www.sec.gov/whistleblower.

 

Whistleblower Programs Beefed Up for Federal Agencies

Burned by its failure to catch the Bernard Madoff Ponzi scheme, despite years of warnings from a tipster, the Securities and Exchange Commission couldn’t say no when Congress ordered it to pay whistleblowers.

There’s little love in official Washington for the Edward Snowden kind that takes secrets to the media. But people who turn in their bosses or companies to the government are viewed as heroes — eligible for compensation — in more and more corners of the federal bureaucracy.

“Let’s face it, blowing whistles is a career limiting, if not a career-ending act,” said Sean X. McKessy, chief of the SEC’s Office of the Whistleblower. In the high-dollar world of securities, he said, only a significant financial incentive would counterbalance that.

“We now have rewarded six people who have enabled us to prevent an ongoing fraud or conduct from getting worse,” he said. “I think that sends a message.”

Skeptics are countering that if the modest number of payouts doesn’t increase this year, faith in the program will wane.

“I have to tell you that the program has had small returns so far,” said Patrick Burns, co-director of Taxpayers Against Fraud, a nonprofit group that backs whistleblowers. “The SEC is an apple tree. … We think it will produce more apples in the future.”

The Dodd-Frank financial reform law requires that when the SEC gets a tip that results in a payment by the company of $1 million or more, the whistleblower gets between 10 and 30 percent of the amount recovered. Awards should tend to the high side when the whistleblower tried to report the fraud within the company first.

The SEC’s Office of the Whistleblower has so far paid $14.88 million to its six whistleblowers. That total, though, is dominated by one $14 million payout on a case the SEC declines to detail.

Click here to read more in the Pittsburgh Post-Gazette.

 

SEC Announces $14 Million Whistleblower Award

Right on the heels of Chief Sean McKessy’s interview promising more resolved cases and whistleblower awards, the U.S. Securities and Exchange Commission (“SEC”) announced an award of more than $14 million to a whistleblower today.  The whistleblower has requested to stay anonymous, which the SEC law permits – a distinct difference from typical False Claims Act cases where the whistleblower’s identity is almost always revealed at the resolution of a case.

The SEC has not yet identified the target company nor the total amount of recovery, but does state that it brought an enforcement action against the company less than six months after the whistleblower tip was filed.  The speed of the SEC’s action – particularly in light of the clearly large value of the settlement – is encouraging and hopefully indicative that other cases may be fast-tracked as well.

As we have previously discussed on this blog, the James Hoyer law firm has significant experience representing clients in filing anonymous tips with the SEC Office of the Whistleblower.  If you have knowledge of a violation of federal securities laws or regulations and are considering filing a complaint with the SEC, please contact James Hoyer for an evaluation of your claims.  Click here for more information about the firm and to submit your information electronically, or you may contact our office at 813-397-2300.

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FOR IMMEDIATE RELEASE
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Washington D.C., Oct. 1, 2013

The Securities and Exchange Commission today announced an award of more than $14 million to a whistleblower whose information led to an SEC enforcement action that recovered substantial investor funds.  Payments to whistleblowers are made from a separate fund previously established by the Dodd-Frank Act and do not come from the agency’s annual appropriations or reduce amounts paid to harmed investors.

The award is the largest made by the SEC’s whistleblower program to date.

The SEC’s Office of the Whistleblower was established in 2011 as authorized by the Dodd-Frank Act.  The whistleblower program rewards high-quality original information that results in an SEC enforcement action with sanctions exceeding $1 million, and awards can range from 10 percent to 30 percent of the money collected in a case.

“Our whistleblower program already has had a big impact on our investigations by providing us with high quality, meaningful tips,” said SEC Chair Mary Jo White.  “We hope an award like this encourages more individuals with information to come forward.”

The whistleblower, who does not wish to be identified, provided original information and assistance that allowed the SEC to investigate an enforcement matter more quickly than otherwise would have been possible.  Less than six months after receiving the whistleblower’s tip, the SEC was able to bring an enforcement action against the perpetrators and secure investor funds.

“While it is certainly gratifying to make this significant award payout, the even better news for investors is that whistleblowers are coming forward to assist us in stopping potential fraud in its tracks so that no future investors are harmed,” said Sean McKessy, chief of the SEC’s Office of the Whistleblower.  “That ultimately is what the whistleblower program is all about.”

The SEC’s first payment to a whistleblower was made in August 2012 and totaled approximately $50,000.  In August and September 2013, more than $25,000 was awarded to three whistleblowers who helped the SEC and the U.S. Department of Justice halt a sham hedge fund, and the ultimate total payout in that case once all sanctions are collected is likely to exceed $125,000.

By law, the SEC must protect the confidentiality of whistleblowers and cannot disclose any information that might directly or indirectly reveal a whistleblower’s identity.

For more information about the whistleblower program and how to report a tip, visit www.sec.gov/whistleblower.

 

Chief Sean McKessy Optimistic About Direction of SEC Whistleblower Program

When Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, the creation of the SEC Office of the Whistleblower was heralded as a positive step in curbing fraud in federal securities transactions.  Yet, in the three years since its inception, the SEC has paid out only four relatively meager awards, despite thousands of claims pouring in to the office.  Although the SEC Whistleblower Program is undeniably new in comparison with the Lincoln-era False Claims Act, patience with this seemingly slow start has been thin as the program has found itself under fire for the lack of immediate results.

As a result, some whistleblowers have understandably questioned whether to file a claim and potentially jeopardize their professional careers with little chance of an ultimate award.  While more than 3,000 claims were filed in 2012, there is no way to count how many claims were not filed by reluctant whistleblowers unwilling to travel down a seemingly endless path.

Just last week, the Director of the SEC Office of the Whistleblower, Chief Sean McKessy, responded to these concerns with optimism for the program and promises of more awards on the horizon.  Chief McKessy’s interview, as reported by Rachel Ensign of the Wall Street Journal’s Risk & Compliance Journal, is attached below.

I find Chief McKessy’s statements to be motivating and evident of his commitment to ensuring that the SEC Whistleblower Program succeeds.  An unfortunate reality to almost any whistleblower case, whether brought through the False Claims Act or an individual government department, is that the process is slow and may take many years to reach a final resolution.  There is no reason to expect any less from the SEC program, which, by nature, will be faced with complex allegations and investigations.  I anticipate that, as rewards begin to be announced, the number of filed complaints will increase exponentially beyond the 3,000 that were filed last year.  For this reason, it remains important for potential whistleblowers to seek counsel and get their claims on file with the SEC as quickly as possible.

The James Hoyer law firm has many years of experience representing whistleblowers and advocating on their behalf, including claims submitted anonymously to the SEC.  If you believe you have information regarding a possible violation of federal securities laws or regulations and are considering submitting your information to the SEC, please contact James Hoyer for an evaluation of your claims.  Click here for more information about the firm and to submit your information electronically, or you may contact our office at 813-397-2300.

Written by Jillian Estes

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By Rachel Louise Ensign, Wall Street Journal

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Chief Sean X. McKessy

When Sean McKessy took the helm of the Securities and Exchange Commission’s new whistleblower office in early 2011, many businesses feared the program would destroy internal compliance efforts. Those concerns have subsided, he said, and the tips have started flowing in–3,001 of them in fiscal year 2012, to be exact. Now the big question is: when will the big whistleblower bounties start being awarded?

Risk & Compliance Journal spoke with Mr. McKessy about his experience launching the office and his plans for the future, which include enforcing the anti-retaliation provisions of the 2010 Dodd-Frank financial overhaul law, the legislation that established the SEC’s new whistleblower program.

We keep hearing that there’s a flood of whistleblower awards on their way. Can you be any more specific as to what to expect and when?

Mr. McKessy: I think it’s a fair question to ask, and I don’t hide from the question of “how come you have made only four payouts and when will you really start making more?” But I don’t really have a prediction for you.

Rather than characterize it as a flood of additional awards, I would say that logically speaking, the longer we get away from the statute that created the program, which was July 21, 2010, the more time we have for whistleblower tips to actually ripen into investigations, and those investigations to ripen into litigation and litigation to ripen into successful actions where we get over a million dollars in sanctions, all of which are required before we have any ability to pay anyone.

How do you decide which whistleblower tips to pursue?

Mr. McKessy: There are two sides of the scale, which are easy to deal with. Some tips that come in are extraordinarily specific, timely and credible. You don’t have to spend a lot of time realizing that those are good tips and you should find a home for additional enforcement resources.  On the other end of the spectrum, sometimes we get tips that are clearly either nonsensical or don’t relate to anything we have the authority to pursue.

It’s really the ones that are in that middle ground that become a little bit more difficult. In connection with those kinds of tips, we have our office of market intelligence, which is comprised of upwards of 50 lawyers, accountants and market professionals whose job it is to read intelligence including whistleblower tips and decide which ones merit additional enforcement resources.

Are you planning to enforce the anti-retaliation whistleblower provisions of Dodd-Frank?

Mr. McKessy: Yes. I think our office has a role to play in pursuing cases where we think companies have not acted in good faith with respect to people who have reported to us.

Obviously I can’t go into any details, but I will say that we are working with enforcement staff and our general counsel’s office on a number of matters that at least have the initial indicia of a fact-pattern that shows that a company didn’t treat their employees in good faith when a report was made to us.

The commission has the authority to enforce the anti-retaliation provisions in Dodd-Frank. We are actively looking for ways to be proactive in pursuing, under appropriate circumstances, a retaliation claim, either as an add-on to an instance where there was substance to the underlying report, but also if we are given evidence that a person reported to us in good faith and it turned out that they were wrong, but they had reason to believe that what they reported to us was true and the company took unfortunate employment action just because they reported to us.

I myself am asking our enforcement staff to be on the lookout for one of these stand-alone retaliation cases.

What has the process been like for deciding whether a whistleblower deserves an award and how much of an award they should get?

Mr. McKessy: The process of deciding whether a whistleblower deserves an award I would characterize as more of a science than an art, since the rules set forth various eligibility criteria. But the rules provide an extraordinary amount of discretion to our office when deciding the size of the award. That I would characterize as the art part.

In the first award, we awarded a [maximum] 30% payout. The whistleblower was very persistent in reporting to us and making sure we were paying attention to the conduct, then worked with us throughout the proceedings and helped us get to the finish line in a very efficient manner. We thought it met a paradigm of the ideal whistleblower.

The second award, we had three whistleblowers, and awarded 15% to be split evenly. That was an instance where we had whistleblowers that had some very important information which put us on the investigation, but they weren’t in the position where they could give us ongoing assistance. It fell short of the maximum award, but they each did more than the minimum.

I would be lying if I said it was a very mathematical, scientific, step-by-step process. Where it becomes a bit of a challenge is when you have to make these calls: what does a 30% case look like versus a 10% case versus a 13% case versus a 28% case?

Did your years in the private sector play a role in the way you’ve set up and run the whistleblower program?

Mr. McKessy: Only when you have worked in-house do you know what it means to be an employee of a company. I think I have a tremendous amount of sympathy for our potential whistleblowers and understand some of the headwinds. Your instincts are to be loyal to your company and not to necessarily report wrongdoing externally.

I also had a perspective on internal compliance functions. I was in house when Sarbanes-Oxley was passed and I was tasked with building a number of the compliance enhancements in light of the requirements of Sarbanes-Oxley. So I also have an appreciation for some of the anxiety when a regulator sets up a new process or a new regime.

Companies were wary of your program before it began. Does that sentiment remain?

Mr. McKessy: I believe that some of that anxiety has subsided. What I’m hearing is contrary to the concern that we would be destroying internal compliance.

What I hear is that companies are generally investing more in internal compliance as a result of our whistleblower program so that if they have an employee who sees something, they’ll feel incentivized to report it internally and not necessarily come to us.

The vast majority of people who come to us about their current or former company do say they tried to report internally.

Similarly, the concern that we would be inundated with a bunch of nonsense and we didn’t have the resources to handle the tips that came in, so far I think has proven to be unfounded.