The Securities and Exchange Commission (SEC) handed out a $700,000 whistleblower reward last week to a finance industry expert whose detailed analysis led to enforcement action against a company. The SEC whistleblower reward represents the largest to date for independent analysis and signals a sea change for SEC reporting: no longer is the role of the SEC whistleblower exclusive to men and women within a company—industry analysts armed with publicly available data can also bring fraud allegations to the government’s attention and earn a reward.
The SEC whistleblower reward announced last Friday was given to an unidentified tipster, and the company implicated by the allegations was also unidentified in court documents. The whistleblower reportedly came forward with tips prior to the establishment of the SEC whistleblower reward program, which was introduced in the Dodd-Frank Act. After the SEC whistleblower program came into effect, the whistleblower came forward with additional analysis, which eventually led to the successful enforcement action.
Most of the SEC whistleblower reward payout to date (a number of which have been discussed on this blog) have been given to corporate insiders who provided the SEC with original information that led to monetary sanctions in excess of $1 million. What you may not know is that the Dodd-Frank Act also authorizes whistleblower rewards for tips gleaned from “independent analysis,” as long as the information provided is not already known to the SEC. This rule in Dodd-Frank defines independent analysis as “your own analysis, whether done alone or in combination with others . . . your examination and evaluation of information that may be publicly available, but which reveals information that is not generally known or available to the public.”
It should be noted that the SEC wasn’t always so open to fraud allegations brought by those who weren’t corporate insiders. The SEC’s openness to whistleblower tips from analysts came in 2009 after the commission was embarrassed by Congressional testimony from Harry Markopolos, a Massachusetts-based financial analyst who said he “gift-wrapped and delivered” to the SEC evidence of the Ponzi scheme orchestrated by Bernie Madoff nine years before the allegations were made public. Markopolos repeatedly implored the SEC to act but was stonewalled.
In response to the 2009 testimony, the SEC created an office to collect whistleblower tips at Markopolos’ recommendation. And while corporate insiders still come forward with the vast majority of whistleblower tips, the most recent SEC whistleblower reward has made it clear that solid information brought by outside analysts will be taken seriously.
In the announcement of the SEC whistleblower reward on Friday, Director of the SEC’s Enforcement Division, Andrew Ceresney, said a high-quality analysis by industry experts “can be every bit as valuable” as company insiders coming forward with first-hand knowledge of wrongdoing. The message seems to be clear—people that aren’t company insiders should not feel discouraged bringing valuable information to the government’s attention.
Another noteworthy aspect of this SEC whistleblower reward is that it represents the fourth consecutive instance in which the commission has issued an award. Since 2011, SEC whistleblowers have earned $55 million in total rewards.
Many expect that news of this SEC whistleblower reward will likely entice more analysts in finance to come forward with tips of wrongdoing. As evidenced by this case, any would-be tipsters can keep their identity anonymous, which would likely be an area of concern for professionals in the industry. The latest reward also demonstrates that blowing the whistle can be financially quite lucrative—$700,000 is nothing to sneeze at.
This reward also serves as a salvo to companies that were previously only focused on tips offered by current and former employees. With the SEC receiving potentially damaging tips from outside analysts, companies will have to be more vigilant with compliance programs.
Take this case, for example: if the whistleblower was a company insider, the company might’ve been able to mitigate against similar whistleblower claims in the future by simply creating a more ironclad confidentiality agreement. Because the tip came from an outside source, the company can’t just change its employee confidentiality agreement—it has to actually change its behavior to avoid another enforcement action.
What Does the SEC Whistleblower Reward Mean to Me?
If in the course of your work you come across wrongdoing, the SEC wants you to come forward and report it, regardless of if you are a company insider or an outside analyst. Before you do, however, it is highly advisable that you speak with an experienced SEC whistleblower attorney to evaluate your claim.
Bringing fraud to the SEC’s attention is not easy—the SEC whistleblower program is filled with dense rules and regulations that may be difficult for non-lawyers to understand. The SEC whistleblower program also has a number of legal pitfalls that can hinder your eligibility for collecting a reward.
An experienced SEC whistleblower attorney can help guide you through this difficult process and provide you with all the resources you need to build a successful case. To learn more, contact the whistleblower law firm of Baum Hedlund Aristei & Goldman today.