The SEC enacted a whistleblower program in 2011, similar to the Federal False Claims Act and the numerous state false claims acts. In like fashion, someone who voluntarily provides information to the SEC that leads to a successful prosecution may be awarded 10% - 30% of the enforcement funds collected in excess of $1 million. To date, the program has paid out more than $57 million to 26 whistleblowers.
In a recent press release, the Chief of the SEC's Office of the Whistleblower, Sean X. McKessy, announced, "We're seeing a significant uptick in whistleblower tips over prior years, and we believe that's attributable to increased public awareness of our program and the tens of millions of dollars we've paid to whistleblowers for information that helped us bring successful enforcement actions." The following are several noteworthy examples of 2016 SEC whistleblower involvement:
SEC Whistleblower Award "Subject to an Offset"
Most recently, the SEC issued an order awarding a whistleblower more than $275,000 in a concealed enforcement matter (the SEC maintains confidentiality of whistleblowers). Of note, however, is the SEC's statement in its April 5 order that the award is "subject to an offset for any monetary obligations…that, as of the date of this order, remain unpaid from the Final Judgment entered against [the whistleblower]." Thus it appears that the SEC will even award a whistleblower where the whistleblower was involved in the wrongful conduct that ultimately led to a successful enforcement and generated the award.
SEC Pays First Award to "Outsider"
In January, 2016, the SEC announced that it awarded more than $700,000 to a "company outsider who conducted a detailed analysis," leading the SEC to a positive enforcement outcome. This outside award was the first of its kind by the SEC, which had previously only issued whistleblower awards to company insiders.
In its press release, the SEC's Director of Enforcement Division, Andrew Ceresney, stated, "The voluntary submission of high-quality analysis by industry experts can be every bit as valuable as first-hand knowledge of wrongdoing by company insiders."
Several weeks after the announcement, the unidentified outsider came forward. Eric Hunsader, owner of a market data firm, discovered that traders were using a proprietary data feed from the New York Stock Exchange, and as a result gained an advantage over traders using the consolidated feed. Hunsader notified the SEC of his discovery and provided the enforcement staff with his information.
While the SEC whistleblower program was enacted as part of the Dodd-Frank Act to help ferret out fraud against the government, the world of whistleblowers has expanded. Companies are no longer limited to internal scrutiny by employees, making it even more likely that whistleblower tips to the SEC will continue to increase.
SEC Files More Amicus Briefs in Support of Whistleblowers
The SEC has been filing amicus briefs in relevant federal court cases to support whistleblowers protection from retaliation, even where information was given to the SEC after the whistleblower was terminated.
Most recently, the SEC lent its written support to David Danon, a former in-house tax attorney for Vanguard Group who terminated Danon in 2013, after he internally reported noncompliance with various tax laws to his superiors at Vanguard. Danon subsequently filed a wrongful termination suit against Vanguard in federal District Court in Pennsylvania. Danon also brought a separate suit in the Supreme Court of the State of New York as a whistleblower, under the federal False Claims Act. In an unusual scenario, Danon's New York whistleblower case was dismissed in late 2015 because the court found that Danon, as in-house counsel for Vanguard, was subject to the New York attorney ethics code and thus forbidden from disclosing Vanguard's confidential information.
But in the pending wrongful termination case, Vanguard argues that Danon's termination was not protected under the anti-retaliation provision of the federal whistleblower laws, primarily because Danon only raised the issue internally and did not complain about the alleged tax fraud to outside authorities until after he was terminated.
The SEC filed an amicus brief in the case, arguing that Danon's complaints within Vanguard qualified him for the anti-retaliation protections of the Dodd-Frank Act. The SEC argues that employees should not be discouraged from first making reports internally to their employers; thus, the anti-retaliation provisions must cover those employees who first make internal disclosures, even if they are terminated before notifying outside authorities. The SEC states that the alternative, "…would significantly weaken the deterrence effect on employers who might otherwise consider taking an adverse employment action."
Similar argument was made by the SEC in another amicus brief it filed earlier this year inVerble v. Morgan Stanleyin the Sixth Circuit Court of Appeals. Eventual decisions in these cases may provide some helpful direction on this important issue, for both employers and employees.
In any event, the ongoing SEC push continues to reflect the importance of having solid, internal reporting policies and assurances that any discovered mistakes are corrected quickly.