Most Americans are familiar with the U.S. Securities and Exchange Commission (SEC), the federal agency responsible for regulating the nation’s stock and options markets. Not as many are aware that the SEC rewards whistleblowers who report violations of securities laws. The SEC relies on individuals who possess such information and rewards them for stepping forward.
At Newman & Shapiro, we pride ourselves on representing whistleblowers who have the courage to do the right thing. Not only do we build a strong case for the government to investigate, but we also work with our clients to negotiate the maximum reward possible. If you have evidence that a company or individual is committing securities law violations, let our dedicated and experienced team help.
Overview Of The SEC Whistleblower Program
Securities fraud not only cheats investors, it undermines the integrity of U.S. markets. The 2010 Dodd-Frank Act created the SEC Whistleblower Reward Program to compensate individuals who report misconduct involving securities. When represented by an attorney, a whistleblower can remain anonymous. In addition, the whistleblower may be protected from employer retaliation.
Examples of improper acts which may give rise to a whistleblower claim are:
- Ponzi schemes, pyramid schemes, and related scams
- Auditing and accounting misconduct, including failure to adhere to auditing standards and accounting statements that misrepresent the value or operations of a company
- False or misleading SEC reports and failure to file reports
- Insider trading, whereby trades are executed on the basis of non-public information
- Embezzlement, theft, and misappropriation of funds and securities Pump-and-dump schemes and other forms of market manipulation
- Fraudulent or unregistered securities offerings
- Bribery of, or improper payments to, foreign officials Fraud associated with public pension plans and municipal securities transactions
Who Can Be A Whistleblower?
To be a whistleblower and participate in the reward program, you must:
- Have original information about fraud or other securities misconduct that has happened, is ongoing, or is about to happen. “Original” excludes public information and that which the SEC already knows about.
- Voluntarily provide the information to the SEC. You cannot be a whistleblower if the information you provide is pursuant to a subpoena, court order, investigation, or similar means.
- The information must lead to a successful SEC enforcement action. It may take a significant amount of time before the SEC acts, but it must reach a resolution that results in monetary sanctions.
- The monetary sanctions collected must exceed $1 million. The whistleblower is then eligible to claim between 10% and 30% of those sanctions.
Also, a person does not have to be a U.S. citizen or live in the U.S. to be an SEC whistleblower.
The SEC’s Focus On Auditors
In the early 2000s, the SEC witnessed numerous accounting scandals that implicated the role auditors play in keeping securities exchanges honest and free of corruption. Perhaps the best known of these was the SEC’s action against Arthur Andersen, for issuing materially false and misleading statements concerning Waste Management, Inc. Along with other cases, the Arthur Andersen matter led to the passage of the Sarbanes-Oxley Act of 2002, which ushered in new requirements and standards for auditors.
The SEC continues to focus on auditor compliance, noting the role they play as gatekeepers and protectors of market integrity. In September 2013, the Commission announced a plan named Operation Broken Gate to identify auditors who neglect their duties and auditing standards. This continued focus on auditors and auditing firms has allowed the SEC to increase its enforcement actions. Because of the importance of auditors in raising red flags over securities misconduct, individuals who work for these companies may be in a unique position to become whistleblowers.
Internal and external auditors and accountants sometimes assume they are not eligible to participate in the whistleblower program. But there are circumstances in which these individuals may report wrongdoing and thereby become eligible for a reward. The Securities Exchange Act allows auditors and accountants to report misconduct to the SEC if:
- They reasonably believe reporting is necessary to prevent conduct that is likely to cause “substantial injury” to the financial interests of the company or investors
- They reasonably believe the company is engaging in conduct that will impede an investigation of the misconduct
- At least 120 days have passed either since they properly disclosed the information internally or since they received the information under circumstances indicating that the company’s officers already knew about it
If you are an auditor or accountant (or work for one) and have information about securities misconduct, contact Newman & Shapiro to speak confidentially about it.
Protections for Whistleblowers Against Workplace Retaliation
Reporting fraud and misconduct takes courage. Unfortunately, far too many companies retaliate against whistleblowers. This conduct is illegal, and the law affords substantial protections against it. Employers may not fire, demote, suspend, threaten, harass, or discriminate against whistleblowers. Anyone who suffers such retaliation can sue for reinstatement, back pay, and other damages.
How Are SEC Whistleblower Rewards Determined?
Eligible whistleblowers may receive 10% to 30% of monetary sanctions over $1 million, provided the money is actually received by the SEC. Some of the factors that will determine the exact percentage of the reward are:
- The significance of the information provided to the SEC
- The degree of assistance and cooperation provided by the whistleblower and his or her attorney
- Whether the whistleblower participated in any wrongdoing
- Whether the whistleblower obstructed any investigations
- How prompt the whistleblower was in reporting the misconduct
Contact Our SEC Whistleblower Attorney Today!
By some estimates, over 18,000 whistleblower complaints have been received by the SEC since 2011. But fewer than 5% have gone to the Enforcement Division. Knowing about fraud and illegality is a prerequisite to being a whistleblower, but it takes a compelling case to get the SEC’s attention.
Building the best case, and winning the maximum reward, takes the knowledge of an attorney who has practiced extensively in this unique area of law. Jeffrey Newman has successfully brought SEC whistleblower actions and negotiated rewards that fairly compensate those who step forward. Contact us today to discuss your legal options and get started on your case.