Securities Fraud Whistleblowers: Not Just on Wall Street
Securities fraud is not something that happens only in the rarefied halls of stock exchanges. Fraud covered under the most recent Securities and Exchange Commission (SEC) whistleblower laws can involve any number of “regular Joe” businesses and corporations, such as the SEC’s September 2016 settlement with the makers of Budweiser beer for violating the Foreign Corrupt Practices Act (FCPA).
For many of us, there weren’t a lot of pluses to come out of the 2008 financial crisis. However, one plus that did result was the shoring up of regulations and the increased protection for securities fraud whistleblowers via the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Among other changes, Dodd-Frank established the SEC’s Office of the Whistleblower to assist those who have information about securities and commodities laws violations. Protections for whistleblowers were also bolstered. In the Anheuser-Busch InBev (Budweiser) case mentioned above, the company was also penalized for preventing an employee from communicating with the SEC when the person had evidence of FCPA violations.
The Commodity Futures Trading Commission (CFTC), an agency that is similar to the SEC but regulates commodities and futures contracts, has similar rules and regulations under Dodd-Frank.
Blowing the Whistle on Securities Fraud
One of the positives to arise from the 2008 financial crisis was the stiffening of regulations, and the protection of whistleblowers, regarding securities fraud, with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Under Dodd-Frank, the Office of the Whistleblower was established for the Securities Exchange Commission (SEC) to encourage those who have information about securities and commodities laws violations to notify the authorities. The Commodity Futures Trading Commission (CFTC) has similar rules and regulations under Dodd-Frank.
If you believe you have legally actionable information regarding securities or commodities fraud, we hope this page will answer your questions. But if concerns still weigh on you, we hope you will contact us at the Louthian Law Firm.
The Importance of Dodd-Frank Act for Whistleblowers
As of 2015, the total budget for the United States had reached $3.8 trillion. Making sure such a large amount of money is being spent in prudent and honest ways is a significant challenge, one some would suggest is impossible.
While the government has an army of investigators and regulators in place and an array of statutes and laws to limit fraud, corruption and over- and improper spending in government, fraud is still a rampant problem. It is a problem not limited to the federal government but, as we learned from the financial collapse of 2008, it is a serious problem in banking and public corporations as well.
What Do Securities Fraud Whistleblowers Need to Do?
The SEC and CFTC violations covered by Dodd-Frank involve the following areas:
- Late trading, which concerns trading mutual fund shares after the day’s net asset value (NAV) has been calculated.
- Insider trading, which involves buying or selling a security based on information not publicly available.
- Money laundering, which relates to hiding the true source of any funds from transactions.
- Violating the Foreign Corrupt Practices Act, which covers two aspects of international corruption with its anti-bribery provisions and accounting provisions.
If your information falls into one of the categories listed above, you must demonstrate that your information meets certain criteria:
- Be voluntary. Your information must be voluntary on your part and must be submitted before Congress, the SEC, or another agency that requests it.
- Be original. Your information must be original, meaning that it comes from your own independent analysis or knowledge. It cannot arise from publicly-available sources.
- Lead to success. Your information must lead to a successful action and to monetary sanctions of over $1 million. More than one action can be added together to reach $1 million if the actions are based on the same set of facts.
- Your information must have been initially submitted after July 21, 2010, which is the date that Dodd-Frank was enacted. However, the illegal conduct’s date or dates can have occurred before then.
Note that U.S. citizenship is not required to file a whistleblower claim with the SEC or CFTC, nor is it required in order to receive an award from a successful suit.
Stock Options as Hush Money to Potential Whistleblowers
Let’s say you’re a rank-and-file employee at a large corporation. Let’s also assume that your employer has recently become much more generous in offering stock options. You certainly are fortunate, aren’t you?
Maybe. But then again, maybe not. Something more sinister could be afoot.
Researchers from three prominent business schools in the U.S. have discovered that over the past 15 years companies have tended to issue more stock options to rank-and-file employees when they’re cooking the books and don’t want to get caught. And these researchers at the Arizona State University, Rutgers, and Columbia Business schools found instances where opening up stock options to the general employee pool who might be involved in (or who weren’t, but might be aware of) financial hanky-panky within the corporation were used as an incentive to keep quiet. And the ploy seems to be working.
If I Blow the Whistle, What Are My Protections?
Often the identity of an SEC or CFTC whistleblower is kept anonymous, but you will need an attorney to handle your submission if you desire anonymity. Usually your identity and the circumstances that led to the award can be kept confidential until you receive the award, at a minimum.
Under Dodd-Frank, you also have job protections as a whistleblower, meaning that you cannot be discriminated against, fired, demoted, suspended, harassed, or threatened for supplying the SEC or CFTC with information. You are protected even if you report problems inside the company first and are subsequently fired before you can supply the SEC or CFTC with the relevant information.
Award Determination in a Securities Fraud Whistleblower Case
The amount awarded is determined by the SEC or CFTC, but a whistleblower can receive from 10 to 30 percent of the amount collected if the suit is successful. A suit is also known as a “covered action.”
A “related action” is one that is based on the information that resulted in the covered action, with the action brought by the US Attorney General’s office or a comparable agency official. Related actions can also lead to awards of 10 to 30 percent.
The SEC uses several criteria when it comes to determining the size of the award within the percentage range. These criteria include the significance of the information, the amount of help provided by the whistleblower, the SEC’s interest in deterring violations, and the extent, if any, to which the whistleblower participated in the situation reported. All of these criteria are guidelines, not rigid requirements.
Payments to SEC whistleblowers come out of a fund established by Congress that is bankrolled through the monetary sanctions the agency receives from successful cases. No money to pay whistleblower awards is ever taken from investors who have suffered losses.
Recent Securities Whistleblower Awards
Since the beginning of the SEC’s whistleblower program, 34 whistleblowers have received $111 million as of September, 2016. More than $54 million has been awarded in the first nine months of 2016 alone. Financial remedies that have been collected in settlements and judgments run to over half a billion dollars. Recent awards include:
- August, 2016: The second-largest award in the history of the program, $22 million, was given to a former executive of Monsanto. Monsanto settled for $80 million over an alleged accounting problem that could have affected the stock’s price.
- June, 2016: A whistleblower was awarded $17 million for a case involving a major entity in the financial services industry. No further details are available.
- September, 2016: The SEC publicized an award of more than $4 million to a whistleblower whose original information led the agency to a fraud. No other details are available.
In September, 2014, the largest award ever given to an SEC whistleblower was $30 million, for key original information and assistance about an ongoing fraud that led to a large monetary recovery.
Blowing the Whistle on Securities Fraud? We Can Help.
If you think you have the facts needed to bring a whistleblower case, the experienced whistleblower attorneys at the Louthian Law Firm can review your case and help you file the forms needed to present your information to the SEC Whistleblower Program.
In order for a whistleblower’s tip to result in an award, it must lead to a successful enforcement action and significant monetary sanctions against the guilty company. This means it is crucial that the information provided to the SEC be specific, credible, timely and backed up by exhibits and documentation. The Louthian Law Firm can help you formulate your claim in a manner that will increase the likelihood of a successful enforcement investigation by the SEC and a monetary award for you as whistleblower. And our strong support system will assist you through every step of the process.
For a free, confidential evaluation of your case, call the Louthian Law Firm today at 1-803-454-1200 or, if you prefer, you can fill out our online contact form.