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SEC Awards $14 Million to Whistleblower




by:
Bora P. Rawcliffe
Sheppard, Mullin, Richter & Hampton LLP - Los Angeles Office

 
October 24, 2013

Previously published on October 23, 2013

The SEC awarded more than $14 million to a whistleblower earlier this month in exchange for information that helped the SEC bring an enforcement action against the perpetrators of an investment fraud in less than six months after the report. [1] The award is the largest made by the SEC since the Office of the Whistleblower was set up in 2011 under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. According to SEC Chair Mary Jo White, the hope is that “an award like this will encourage more individuals to come forward.” For companies worried about their FCPA compliance, the whistleblower program raises concerns that awards such as this one will encourage employees to go straight to the government rather than to their internal compliance committees especially because FCPA enforcement actions continue to result in multi-million dollar settlements.

Under the Dodd-Frank Act, whistleblowers who voluntarily provide independently derived “original information” to enforcement authorities related to securities law violations, including the FCPA, are eligible to receive between 10 and 30 percent of any recovery that is in excess of $1 million. To be “original,” information (1) must be derived from the independent knowledge or analysis of the whistleblower; (2) cannot be known to the SEC from any other source; and (3) cannot be exclusively derived from an allegation made in a judicial or administrative hearing, in a governmental report, hearing, audit, or investigation, or from the news media. Dodd-Frank Act § 911a(a)(3). The whistleblower must provide critical information that was unknown to the SEC and led to the success of the government’s case. S. Rep. No. 111-176, at 111 (2010). The law has a global reach because it does not require that the whistleblower be a U.S. national. Dodd-Frank Act § 911a(a)(4). This means that employees of foreign subsidiaries can also reap rewards for reporting FCPA violations.

Although there have not yet been any whistleblower awards related to an FCPA enforcement action, FCPA settlements continue to make headlines. Earlier this year, French oil giant Total S.A. agreed to pay $398 million to settle FCPA charges. Had that settlement resulted from a whistleblower tip, a whistleblower could have reaped up to $119 million. Continued settlements in the tens or hundreds of millions of dollars are likely to create significant monetary incentives for whistleblowers. Although of the 3,001 tips the SEC received in 2012, only 115, or about four percent, related to possible FCPA violations,[2] the average FCPA enforcement action takes about two to four years to materialize. As a result, the impact of the whistleblower program may not become fully known for a few more years. Considering the size of recent FCPA settlements, publicity from just one FCPA whistleblower award would likely suffice to bring wide attention to FCPA issues and open the floodgates for whistleblower reports. In a climate of aggressive FCPA enforcement, increased whistleblower activity brings with it an increased risk that companies could be blindsided by FCPA allegations without the opportunity to conduct an internal investigation and self-disclose problems. This is just one more reason for companies with an international footprint to assess the adequacy of their internal controls and compliance programs and to implement policies and procedures that provide for a swift response to internal allegations.




[1] SEC Awards More than $14 Million to Whistleblower, SEC Press Release 2013-209, Oct. 1, 2013.

[2] SEC, Annual Report on the Dodd-Frank Whistleblower Program, Fiscal Year 2012, November 2012.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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