Today, the SEC announced that two J.P. Morgan wealth management subsidiaries
agreed to pay $267 million to settle charges in an enforcement action initiated by information brought to the SEC by a Labaton Sucharow client, a J.P.
Morgan executive. The enforcement is one of the largest and highest profile actions initiated by an SEC whistleblower since the establishment of the
The SEC’s investigation uncovered that J.P. Morgan’s investment advisory business and its nationally chartered bank were steering clients to more expensive
in-house investments without proper disclosures of conflicts of interests. The troubling actions in this case occurred over several years, and deprived
JPMorgan's clients of necessary information to make informed investment decisions.
This case powerfully demonstrates the vast potential of the SEC Whistleblower Program to find and eradicate wrongdoing early and often. Because of
the unique protections and incentives of the program, our client chose to report the securities violations at J.P. Morgan to the SEC. In doing so,
the individual was able to protect J.P. Morgan clients and improve the sales culture of the organization, while avoiding retaliation and blacklisting.
And as awareness of the SEC Whistleblower Program grows, so does the likelihood that more individuals will step forward to reveal violations. The program’s
broad international reach and ability to report anonymously provide enormous opportunities to uncover misconduct wherever it occurs. In designing this
innovative program, the SEC understood that employees represent a critical first line of defense against wrongdoing. To learn more about the SEC Whistleblower
Program, please see here.
In a recent piece in The New York Times, I discuss some of the key considerations for SEC whistleblowers including when, how and what to report,
and how to navigate the high pressure environment of the whistleblower’s workplace. To read the full article, see here.
The SEC just announced another whistleblower award, granting more than
$325,000 to a former investment firm employee whose tips led to a successful enforcement action. This award, like the $30 million award granted to
a whistleblower last year, came with a caveat: the whistleblower could have received a larger award, if not for a delay in reporting. While
the whistleblower waited to report the misconduct until after leaving the firm, whistleblowers are provided significant employment protections to encourage
the timely reporting of misconduct. Speaking to this, Enforcement Division chief Andrew Ceresney noted that the program encourages tipsters to come
forward in order to "prevent misconduct from continuing unabated while investors suffer more harm.”
Together with the University of Notre Dame, today we released the findings of a collaborative and historic survey of financial services professionals across the U.S. and UK. The Street, The Bull and The Crisis is the most expansive analysis of its kind, probing the ethical views of a broad spectrum of the industry, from young professionals to senior executives, investment bankers, and investment managers, from San Francisco to Scotland.
While deciding to blow the whistle is a complex decision, timing matters. Sometimes, a cursory submission, followed by a more lengthy and detailed
submission, may be in a whistleblower’s best interest. And, whistleblowers who fear retaliation may wish to consult an attorney to explore the anonymity
protections afforded by Dodd-Frank’s program when individuals work with a whistleblower advocate.
Despite sweeping reform efforts and headline-making consequences of corporate misconduct, the findings make clear that attitudes toward corruption within the industry have not changed for the better. Indeed, nearly half those polled find it likely that their competitors have engaged in misconduct in order to gain an edge in the market. On an individual level, 32 percent of professionals with less than a decade in the business would engage in insider trading if they could get away with it. That’s twice the figure (14 percent) for employees with more than two decades in the industry. What does this mean for the future of the industry and how will it impact the fragile confidence of investors?
We are most concerned by findings relating to the widespread use of secrecy policies and agreements—a full 25 percent of individuals earning $500,000+ per annum have been asking to sign a confidentiality agreement that would prohibit reporting illegal or unethical activities to the authorities. As federal agencies and Congress has made clear, corporate entities cannot obstruct an individual’s fundamental right to freely engage with his or her government.
For more information on our findings, please see the full report here or see select highlights in this infographic.
In a landmark action that demonstrated the strength and reach of the SEC whistleblower program, the agency announced a sizable bounty to a former company officer, a Labaton Sucharow client, who provided law enforcement with key information about a securities fraud that resulted in a successful enforcement action. What makes this matter so unique is the fact that corporate officers are typically ineligible for awards. Typically. Among other exceptions, if a company had knowledge of a possible securities violation and compliance or other responsible parties failed to act within 120 days of learning of the misconduct, a company officer may come forward. This marks the first time the SEC issued an award in such a matter. Most importantly, this matter shows the remarkable power of the program to embolden high-level insiders to come forward and take a stand against corporate wrongdoing.
In the SEC’s report to Congress, just released today, the agency documented the tremendous success of its revolutionary investor protection initiative. As we peel back the layers of the report, we note some startling findings with respect to the origin of whistleblower submissions. First and foremost, the program’s international reach is inarguable. This year’s largest award — more than $30 million! — came from a foreign tipster. And, of all 14 awards issued by the SEC to date, four were awarded to whistleblowers outside the U.S. This year, the agency received tips from 60 different international jurisdictions, with the UK, India, Canada, China, and Australia chief among these. Within the U.S., submissions came from every state in the union. The busiest states for whistleblowers in FY2014? California, Florida, Texas, and New York. How this stacks up to 2013 submissions is particularly interesting: submissions from California jumped by 48%; Florida by 41%; Texas by 54%; and New York, which fell from 2nd to 4th place, actually recorded a 5% drop in submissions. To view the SEC report in its entirety, please see here.
If you missed the NYC stop on the Government Accountability Project’s Whistleblower Tour last month, you’re in luck. Baruch has shared a fantastic recording of the panel on which I was honored to speak alongside Enron Whistleblower Sherron Watkins, Jon Oberg, Louis Clark and Jennifer Pacella.
American Whistleblowers Live at Baruch from kokobaz on Vimeo.
This week, eight leading Democrats on the House Oversight and Government Reform and House Financial Services Committees sent a letter to SEC Chair Mary Jo White calling on the Commission to ensure corporations do not enact measures meant to stymie whistleblowers. The letter pointed to a recent Washington Post article, which outlined numerous ways companies have restricted employees from reporting misconduct.
The letter echoes concerns that we, along with the Government Accountability Project, first raised in a July Op-Ed in the New York Times DealBook. Along with GAP and 250 other organizations, we have submitted a petition, urging the SEC to hold a series of hearings around the country to discuss the problem of workplace retaliation and explore new ways to increase reporting, internally and externally. It also asks the agency to create an advisory committee on whistleblower reporting and protection; to recommend program improvements and best practices; and engage in appropriate rule-making to clarify and strengthen whistleblower protections. This is a serious issue and we are glad Congress has taken notice of our efforts.
Please feel free to view the petition here - and, as always, don’t hesitate to reach out with any questions or concerns.
Today, the SEC charged the Albany-based investment advisory firm Paradigm Capital and its owner, Candace Weir, with violating the federal securities laws by engaging in prohibited and undisclosed principal transactions on at least 83 separate occasions, among other charges. Paradigm and Weir agreed to pay total sanctions of approximately $2.2 million to settle the charges. The SEC began investigating Paradigm after a Labaton Sucharow client – who has chosen to remain anonymous – reported possible misconduct at the firm to the SEC.
According to the SEC’s order, Paradigm, at the direction of Weir, engaged in a series of transactions with a broker-dealer called C.L. King when trading on behalf of a hedge fund client. C.L. King is also controlled and majority-owned by Weir, meaning that affiliated entities stood on both sides of these transactions. Under Section 206(3) of the Investment Advisers Act, an adviser like Paradigm must disclose such principal transactions to their client – here, the hedge fund – and obtain client consent before proceeding. Paradigm failed to satisfy these important disclosure and consent obligations, which are designed to ensure that clients are protected from self-dealing and possible conflicts of interest.
Additionally, Paradigm failed to disclose in its Form ADV that a “conflicts committee” – which it had ostensibly established for the purpose of mitigating possible conflicts like those posed by the principal transactions – was itself conflicted. According to Julie Riewe, the co-chief of the SEC Enforcement Division’s Asset Management Unit, “Paradigm’s use of a conflict committee denied its hedge fund client the effective disclosure and consent to which it was entitled. Advisors to pooled investment vehicles need to ensure that any mechanism developed to address conflicts in principal transactions actually mitigates those conflicts.”
We’re very pleased that this case resulted in a successful settlement for the SEC: it’s one of a growing number of signs that the SEC Whistleblower Program is effectively helping the SEC detect, investigate and prosecute securities violations that might otherwise have remained under the radar. The process of being an SEC whistleblower isn’t often easy, but, as this settlement shows, coming forward can make a difference both for the SEC and for investors.
By Jordan Thomas and Vanessa De Simone
The SEC announced yesterday that it will pay two whistleblowers an award of $875,000 for their reporting of original information that led to a successful SEC enforcement action. The total award, which will be split equally between the two whistleblowers, represents 30% of the sanctions collected by the SEC in the case – the maximum percentage award allowed under the SEC Whistleblower Program. In keeping with the program’s emphasis on protecting the anonymity and confidentiality of whistleblowers, the SEC did not disclose the names of the whistleblowers or provide identifying information about the underlying enforcement action.
This latest award suggests the SEC is beginning to complete investigations sparked or aided by the first wave of whistleblower tips received after the implementation of the SEC Whistleblower Program rules in August 2011. Given that SEC investigations typically take two to four years to complete – with larger and more complex cases often falling on the far end of that range – we expect to see an increasing number of significant awards in the coming months, as more cases work their way through the investigative pipeline. We applaud the whistleblowers in this case for coming forward and making a difference, and look forward to hearing more positive news from the SEC.
By Jordan Thomas and Vanessa De Simone