Working for Justice

SEC Rewards Ex-Employees More Than $8 Million for Reporting Employer Misconduct

Last week the Securities and Exchange Commission said it will pay a former company employee who reported potential securities law violations between $5 million and $6 million — the third-largest award to date under the SEC’s whistleblower program.

The tipster at the unnamed company had alerted the SEC to violations of securities law that the SEC had no way of detecting, according to the SEC’s statement.

Earlier in the month, the SEC awarded $3.5 million to another whistleblower.

According to the SEC, “This particular whistleblower’s tip substantially strengthened our ongoing case and increased our leverage during settlement negotiations with the company.” In awarding the whistleblower $3.5 million, the SEC said it took into account “certain unique hardships” experienced by the whistleblower, specifically the person had been unable to find work since reporting the misconduct, largely because of their whistleblowing.

In both instances, as is typical, the SEC didn’t release details about the whistleblower or the information they provided. By law, the SEC has to protect whistleblower confidentiality, and as a practice, it keeps confidential all information that could be used to directly or indirectly to identify the whistleblower.

The award brings the total amount of whistleblower payouts the SEC has made since the 2010 Dodd-Frank Act to over $60 million, paid out to 29 whistleblowers.

The Dodd-Frank Act was enacted in 2010 to address many of the abuses that contributed to the financial crisis in 2008. One of the provisions encourages employees and other persons to report wrongdoing they see or learn about by offering substantial rewards and protection against employer retaliation. Persons can report misconduct to the SEC when they suspect their employer has violated the federal securities laws. Persons can also report misconduct to the Commodity Futures Trading Commission when they suspect the employer has violated the Commodity Exchange Act.  Persons may file reports with either agency on an anonymous basis through an attorney.

Under Dodd-Frank, any person who voluntarily provides original information that leads to the successful enforcement is entitled to a reward of between ten percent (10%) and thirty percent (30%) of the amount collected in any enforcement action. The largest payout under the program so far came in September 2014, when the SEC announced it would give more than $30 million to a person who provided key original information that led to a successful enforcement action.

Dodd-Frank also affords protection to employees against employer retaliation for reporting. An employer that discharges, demotes, suspends, threatens harasses, directly, indirectly, or in any other manner discriminates against an employee for reporting misconduct may be required to (i) reinstate the employee with the same seniority status that they would have had, but for the retaliation; (ii) pay the employee 2 times the amount of back pay otherwise owed to the employee, with interest; and (iii) compensate the employee for litigation costs, expert witness fees, and reasonable attorneys’ fees.

 

Charles Field

Charles Field

Charles H. Field is a partner in the San Diego office of Sanford Heisler Sharp. As Co-Chair of the Firm’s Financial Services practice, Mr. Field leverages his decades of practice focused on commercial transactions and regulation to recover investments that have been mishandled or lost. Learn More

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