Whistleblower

Corporate Whistleblowing: Key Issues In Responding to Possible Violations

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The need to detect and investigate reported allegations of wrongdoing within a corporation has long been a fact of corporate life. In the last 15 years, however, a combination of circumstances has contributed to an explosion of activity in this area. Among the contributing factors was Congress’ passage of laws and related agency regulations encouraging and, in some cases, mandating that employees report suspected corporate misconduct; creating financial incentives for employees to do so; and prohibiting retaliation against those who report. For companies, understanding their obligations pursuant to this statutory regime and the unsettled issues still surrounding it is crucial both for purposes of complying with applicable law and responding appropriately to alleged wrongdoing. Recently Orrick attorneys drafted an article for the Review of Securities & Commodities Regulation that discusses certain significant whistleblowing provisions of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), as well as best practices for responding to tips where these statutes apply.

To view the full article, please click here.

Can You Hear the Whistle Blowing?: SEC Punishes Company that Did Not Address Fraud Allegations by Whistleblower

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The U.S. Securities and Exchange Commission recently announced the latest whistleblower bounty awarded under the Dodd-Frank Act, which authorizes rewards for original information about violations of securities laws.  Whistleblowers can receive 10 percent to 30 percent of the money collected in an SEC enforcement action where the monetary sanctions imposed exceed $1 million.

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SEC Charges Hedge Fund Adviser with Whistleblower Retaliation under Dodd-Frank

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On June 16, 2014, the SEC issued its first-ever charge of whistleblower retaliation under section 922 of the Dodd-Frank Act, charging a hedge fund advisor and its owner with “engaging in prohibited principal transactions and then retaliating against the employee who reported the trading activity to the SEC.” READ MORE →

Commodity Futures Trading Commission Issues First Whistleblower Award

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On Monday, May 19, 2014, the Commodity Futures Trading Commission (“CFTC”) issued its first award to a whistleblower under its Dodd-Frank bounty program.

The Commission will pay $240,000 to an unidentified whistleblower who “voluntarily provided original information that caused the Commission to launch an investigation that led to an enforcement action” in which the judgment and sanctions exceeded $1 million. The heavily redacted award determination on the CFTC’s website does not reveal the name of the implicated company, the nature of the wrongdoing involved, the percentage of bounty the whistleblower received (which is required to be between 10 and 30 percent pursuant to the statute), or the factors considered in determining the percentage of the bounty.

Prior to this first grant of an award to a whistleblower under the CFTC’s Dodd-Frank bounty program, there were 25 denials of award claims. The reasons for the denials primarily fell into one or more of several categories:

  1. the individuals provided information before the passage of Dodd-Frank;
  2. they did not file a form TCR as required by the regulations;
  3. they did not provide information “voluntarily” but rather in response to a Commission request; and/or
  4. the information did not cause the Commission to open or expand an investigation or significantly contribute to a success of a Commission matter.

Time will tell whether this first award will have any effect on the number of whistleblowers who report to the CFTC or the quality of information the Commission receives.

For Whom the Whistle Tolls in 2014

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Momentum for the SEC’s Dodd Frank whistleblower program is growing, and 2014 can be expected to bring continued expansion of the program and the number and types of whistleblower actions initiated by the SEC.  The SEC’s annual report to Congress reported that 3,238 whistleblower tips were received in 2013, up almost 10% from 2012, and awards to whistleblowers who provide information to the SEC are increasing as more substantive tips are received.

An investigation by the SEC into a whistleblower tip can take several years to culminate in an enforcement action, so the last year likely saw just the beginning of a wave of enforcement actions.  Despite the fact that over 6,000 tips have been received through 2013, the SEC has issued only six separate awards to tipsters.  Those awards have ranged from $125,000 to a record $14 million, representing 10 to 30 percent of the overall funds recovered by the SEC in these whistleblower cases. READ MORE →

Moving Right Along: The Office of Whistleblower Issues Its 2013 Annual Report

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The SEC released its Fiscal Year 2013 Annual Report   (the “Report”) to Congress on the Dodd-Frank Whistleblower Program on  November 15, 2013.  The Report analyzes the tips received over the last twelve months by the SEC’s Office of the Whistleblower (“OWB”) and provides additional information about the whistleblower award evaluation process.

Breakdown of Tips Received in FY 2013

The OWB reported a modest increase in the number of whistleblower tips and complaints that it received in 2013 – 3,238 tips in 2013 compared to 3,001 in 2012.  Overall, the 2013 whistleblower tips were similar in number, type, and geographic source to the whistleblower tips reported in 2012.  As in 2012, the most common types of allegations in 2013 were: Corporate Disclosure and Financials (17.2%), Offering Fraud (17.1%), and Manipulation (16.2%).  Most whistleblowers, however, selected “Other” when asked to describe their allegations.  In 2012, the most common complaint categories reported were also Corporate Disclosure and Financials (18.2%), Offering Fraud (15.5%), and Manipulation (15.2%).  See Appendix B to the Report, listing tips by allegation type and comparing tips received in 2013 to those received in 2012. READ MORE →

Take Heart, Companies Can Win Whistleblower Cases: Two Key Victories Last Week in SOX and Dodd-Frank Cases

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Two victories for employers last week in Dodd-Frank and SOX whistleblower cases may provide a basis for at least a sliver of optimism among employers and whistleblower defense lawyers hammered by a recent series of employee-favorable decisions under the two main federal statutes covering whistleblowing activity.

Banko v. Apple

In Banko v. Apple Inc., Case No. 3:13-cv-02977-RS, a Northern District of California judge dismissed a Dodd-Frank retaliation claim where the employee only made a complaint internally to management and never complained to the Securities and Exchange Commission (SEC). The court followed the reasoning of the Fifth Circuit in Asadi v. G.E. Energy (USA), L.L.C. (see Orrick’s prior blog post on Asadi) and rejected a broader interpretation of the Act adopted by four district courts and the SEC that Dodd-Frank covers internal reporting protected by the Sarbanes-Oxley Act (SOX) as well as reports to the SEC. READ MORE →

SEC Issues Huge Bounty Award of $14 Million to Whistleblower under Dodd-Frank

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Whistle

Today the SEC announced that it is issuing a whistleblower award of over $14 million to a whistleblower who provided information that resulted in the recovery of investor funds. The significant whistleblower award comes after many critics have questioned the success of the SEC’s whistleblower award program which, to date, has only issued two much smaller awards since the program’s inception in 2011. The first award payment was issued in August 2012 for approximately $50,000. The second award, paid to three whistleblowers for information that stopped a sham hedge fund, has paid out approximately $25,000 with an expected total payout of $125,000. READ MORE →