Securities / SEC & Commodity Futures Trading Commission (CFTC) Whistleblowers 2017-02-06T14:16:52+00:00

Securities / SEC & Commodity Futures Trading Commission (CFTC) Whistleblowers

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Securities and commodities fraud are two of the most destructive forms of white collar fraud. They not only harm individual investors, but have the potential to undermine the entire financial system. Securities fraud involving mortgage backed securities is widely considered to be one of the principal causes of the 2008 financial collapse in the United States and financial markets throughout the world.

Investigations into the causes of the 2008 crisis led to the passage, in 2010, of the Dodd-Frank Wall Street Reform and Protection Act. The purpose of the Act is clearly stated in its title: “… to promote the financial stability of the United States by improving accountability and transparency in the financial system…”

Towards that end, the Dodd-Frank Act created two new whistleblower programs. One addressed fraud involving the sale and trading of securities (mainly stocks and bonds), which is regulated by the Securities and Exchange Commission (SEC). The laws governing the SEC whistleblower program can be read on our SEC Law page.

A second whistleblower program addressed fraud related to the futures trading of commodities, including agricultural products (e.g., grains, fruits, cotton, coffee, sugar), metals (gold, silver, copper), and energy (oil, coal, etc.). Commodities are regulated by the Commodity Futures Trading Commission (CFTC), which also has authority over the foreign currency exchange market. The CFTC whistleblower laws are available on our CFTC Law page.

Whistleblower Awards

The two whistleblower laws are basically the same and share many similarities with the False Claims Act. A whistleblower who provides information to the SEC or the CFTC that enables the government to collect more than $1 million is entitled to a reward of at least 10 percent, and potentially up to 30%, of the total amount collected. This amount includes penalties, disgorgement (the recovery of fraudulently obtained profits), and interest.

According to the law, in determining the amount of the award, the following facts must be considered:

  • How important was the whistleblower’s information to the success of the recovery action.
  • The “degree of assistance” provided by the whistleblower and his or her attorneys.
  • The “programmatic interest of the Commission in deterring violations of the securities laws.”

Both Commissions further clarified the meaning of programmatic interest in final rules explaining how their whistleblower programs would be implemented. In deciding programmatic interest, the Commissions consider:

  • The degree to which the award enhances the Commission’s ability to enforce securities laws and protects investors
  • The degree to which the award encourages other whistleblowers to come forward with high quality information and
  • The severity and wide spread nature of the violations exposed and the potential harm they posed to investors.

Other factors the Commissions consider in determining the size of an award are the timeliness of the whistleblower’s report and any “unique hardships” experienced by the whistleblowers as a result of their reporting and assistance.

Original Information

To qualify for an award, the whistleblower must provide the SEC or CFTC with “original information,” which is defined in the law as information that “is derived from the independent knowledge or analysis” of the whistleblower and “is not known to the Commission from any other source, unless the whistleblower is the original source of the information.” There are a number of other conditions explained in SEC and CFTC rules that determine whether information will be considered original. For example, information obtained by an “officer, director, trustee, or partner of an entity… in connection with the entity’s processes for identifying, reporting, and addressing possible violations of law” would not be considered original.

Anti-retaliation Protection

Both the SEC and CFTC laws prohibit retaliation against whistleblowers. They provide that, “No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower.” Employees who suffer retaliation can sue for reinstatement with equal seniority status, two times their back pay plus interest, and compensation for legal costs and attorney fees.

Foreign Corrupt Practices Act

The SEC and the Justice Department jointly enforce the Foreign Corrupt Practices Act (FCPA), which concerns the bribing of foreign officials. With the passage of the Dodd-Frank Act, whistleblowers that provide the SEC with original information regarding violations of the FCPA may be eligible for the rewards and protections offered under the SEC whistleblower program.

Filing a Claim

It is important for whistleblowers to understand they must comply with SEC and CFTC rules in submitting a claim or risk being denied an award. Whistleblowers may submit claims anonymously, but only if they are represented by an attorney. Representation by an experienced whistleblower attorney is critical in navigating SEC and CFTC rules and regulations and, as indicated above, can help you receive the maximum award possible. If you are aware of fraud involving securities and commodities trading, or violations of the Foreign Corrupt Practices Act, and would like to discuss the matter, please contact the Baum, Hedlund, Aristei and Goldman whistleblower team.