Whistleblower

SEC Whistleblower Awards Reach Record-Breaking Figures In 2018

The success of the SEC’s whistleblower award program was evident once again as the Commission recently announced that it awarded $33 million, the largest award in its history, to a single whistleblower for information related to the violation of securities laws. In addition, two other whistleblowers will share a $50 million award for their efforts in providing accurate and timely information to the SEC about securities violations. The law firm representing the whistleblowers revealed that the award recipients are three Merrill Lynch executives who supplied information to the SEC about the company’s misuse of customer funds. As a result, the SEC obtained a $415 million settlement with Bank of America Corp.

Since 2012, the SEC has doled out over $266 million to 55 whistleblowers.  The SEC has imposed over $1.5 billion in monetary sanctions against those who have been found to violate securities laws based on evidence supplied by whistleblowers. This amount includes approximately $740 million in illegally obtained funds, much of which is set aside to be returned to victims of securities fraud.

SEC Use of Whistleblowers to Prosecute Security Crimes

The SEC is authorized by Congress to issue monetary awards to individuals who provide credible information that results in an enforcement action in an amount exceeding $1 million in sanctions. Reliance on whistleblowers is one of the SEC’s most effective enforcement tools for securities law compliance. The use of whistleblowers allows the SEC to identify and prosecute securities violators swiftly while protecting markets and investors.

Financial Incentives for Whistleblowers

As these most recent awards indicate, the SEC is willing to offer large awards to encourage whistleblowers to come forward with information related to securities violations. A whistleblower may be awarded between 10 percent to 30 percent of the funds collected as a result of the action.  Payments to whistleblowers originate from an investor protection fund created by Congress. The fund is financed through sanctions paid by entities who have been charged with criminal activity by the SEC. Funds distributed to whistleblowers are never collected from investors who have been injured by wrongdoers.

SEC Protection Against Retaliation

In addition to offering large monetary awards to whistleblowers, the SEC engages in enforcement actions against entities that attempt to retaliate against whistleblowers for providing information to the Commission. Any activity that hinders the exposure of illegal behavior in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) is handled by the SEC. The Supreme Court recently held that the safeguards against retaliation under Dodd-Frank are applicable only to whistleblowers who directly report securities violations to the SEC. A whistleblower who discusses his findings internally is not protected.

Indeed, the SEC has initiated actions against two companies for retaliating against whistleblowers, eight entities for inhibiting whistleblowers from reporting illegal conduct to the SEC, and one company for engaging in both behaviors. These combined actions resulted in $19 million in fines recovered by the SEC. Retaliation cases may not yield considerable monetary penalties, but the threat of private litigation may significantly deter these actors from retaliating against whistleblowers.

If you have knowledge that a corporation has engaged in a violation of securities laws, give us a call at 1-800-988-8005 today for a free consultation and case review with an experienced whistleblower attorney.

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