Bracker & Marcus LLC not only represents whistleblowers in False Claims Act cases, but we also represent whistleblowers reporting tax fraud or U.S. Securities and Exchange Commission (SEC) violations. This blog will look primarily at the SEC whistleblower program.
Whistleblower Awards Are Worth the Wait
The SEC has a whistleblower rewards program that awards between 10% and 30% of money collected from tips that result in over $1,000,000 in sanctions. More than 33,000 whistleblower submissions have been filed with the SEC since its whistleblower program was established in 2011.
However, it is extremely picky in which cases it pursues. The SEC averages approximately eight whistleblower awards per year, and the cases can take a long time. Many take 24 months between case opening and the filing of an enforcement action, but 37 months for financial fraud and issuer disclosure cases. Actual payouts to the whistleblowers sometimes take up to five years longer.
But when there are finally payouts, they are frequently in the tens of millions of dollars.
Such is the case of a recent whistleblower award, the largest ever awarded by the SEC in the history of the program. In June 2020, the whistleblower received a $50 million award for reporting a scheme by the Bank of New York Mellon. The scheme found the bank “giving pension funds less-than-desirable exchange rates” when exchanging foreign currency, resulting in a windfall for the bank.
In 2015, the Bank of New York Mellon settled with the SEC for more than $700 million in fines, yet the whistleblower had to wait another five years to be paid.
It Pays to Be Tenacious
About a month earlier, the SEC issued an award of more than $27 million to a whistleblower who alerted the agency to misconduct with overseas operations at their company. The SEC may reduce a whistleblower’s reward when they “unreasonably delay” reporting the fraud.
Yet in this case, the agency declined to make any reductions “due to the strength of the positive factors” and the fact that the whistleblower “repeatedly and tenaciously objected to and escalated” the concerns about misconduct within the organization.
Therefore, it is key to report internally early and often. Once it becomes clear that the organization is not going to rectify the problem, report to the SEC as quickly as possible. We routinely engage with clients during the internal reporting stages so that we are prepared to file soon after those efforts fail. In some instances where internal reporting succeeds in curing the situation, we will not file at all.
As noted in the commentary for a Law360 article about the bounty, the award letter read like a “love letter to whistleblowers” and the SEC wanted “to send a message that they will hold corporate America and Wall Street companies accountable if they fail to respond to internal reporting.”
In other words, the SEC Whistleblower Office is open for business, and it wants whistleblowers to come forward with any information about wrongdoing.
Awards on the Horizon
To date, the SEC has issued over $500 million in whistleblower awards. However, it has settled approximately 150 enforcement actions exceeding the $1 million recovery threshold for potential award eligibility, and so we expect a substantial uptick in awards in the coming years.
The issue is not that the SEC fails to pursue these cases. The problem is that it proceeds at a glacial pace in paying the whistleblowers. However, if you remain patient, there can be a substantial pot of gold at the end of the SEC whistleblower rainbow.
False Claims Act cases are filed under seal in federal court while the government conducts its investigation, and are unsealed when that investigation concludes. If the government declines to intervene, we have the right to pursue the claims ourselves on the government’s behalf.
Internal Revenue Service (IRS) and SEC whistleblower claims have some important differences. For one, there is no federal lawsuit; we file directly with the affected agency. If the agency declines the case, we do not have the right to pursue the fraud ourselves. Unlike the False Claims Act, where the case is inevitably unsealed, the IRS and SEC Whistleblower programs endeavor to protect the confidentiality of whistleblowers. Whistleblowers can even submit a tip anonymously if represented by counsel.
If you are aware of SEC fraud, such as insider trading, fraudulent securities offerings, and market manipulation, or IRS fraud, such as income or employment tax fraud and other violations of tax law, please contact us today.