Last Friday, the SEC announced it had granted a $3.5 million whistleblower award to an individual who provided additional information that supported an ongoing SEC investigation.
The award, one of the largest granted to a single whistleblower in 2016, involves a unique set of circumstances and highlights the potential impact
of whistleblowers who come forward with information, even when an investigation is already underway.
According to a final order released on
Friday, the whistleblower’s award application was initially denied in January. The whistleblower had submitted a tip through counsel, but the application
was denied because the information did not lead to the initiation of an investigation or cause the SEC to inquire into new conduct. However, the whistleblower
appealed under a rule which states that whistleblowers may receive a reward if the information “significantly contributes” to the success of an investigation.
Upon reconsideration, the SEC determined that the whistleblower did meet this criteria.
In fact, according to Andrew Ceresney, Director of the SEC’s Enforcement Division, “Whistleblowers can receive an award not only when their tip initiates
an investigation, but also when they provide new information or documentation that advances an existing inquiry. This particular whistleblower’s tip
substantially strengthened our ongoing case and increased our leverage during settlement negotiations with the company.” The SEC also stated that it
considered “certain unique hardships experienced” by the whistleblower, such as being “unable to find employment since reporting the misconduct.” The
final order was redacted to protect the whistleblower’s identity.
This award highlights a number of important issues for whistleblowers. First, it demonstrates the challenge and complexity of filing a successful whistleblower
claim. In addition to complicated legal and procedural issues, individuals must manage numerous personal and professional risks. By filing with counsel,
this whistleblower was able to maintain anonymity and ultimately articulate a successful argument for an award through the appeals process. This award
also demonstrates that the SEC takes retaliation seriously. In considering the whistleblower’s difficulties in finding new employment, the SEC not
only weighed the retaliation the whistleblower faced from his/her company, but also blacklisting from the greater financial services industry.
And while the whistleblower process is complex, this case also illustrates a simple, but critical point: never underestimate the value of actionable intelligence, especially from insiders. During my long tenure at the SEC, I witnessed first-hand the powerful impact that seemingly simple intelligence from insiders could have on a case.
In issuing this award for providing supporting information, the SEC has empowered individuals to come forward – even in ongoing investigations – and
has demonstrated the huge financial benefits of doing so.
Last week, Cornerstone Research released a new report, SEC Enforcement Activity Against Public Company Defendants, examining SEC actions initiated between fiscal years 2010 and 2015.
Utilizing data from the SEC Enforcement Empirical Database,
the report offers some detailed insights into SEC enforcement actions in recent years, such as:
- The number of enforcement actions continues to increase. In fiscal year 2015, the SEC initiated a record 807 actions, which represented a
7% increase over fiscal 2014, and a 10% increase over the median number of actions for fiscal years 2010 through 2015.
- Actions against public company defendants resulted in large penalties and disgorgements. Although actions against public company defendants
represented an average of 4% of actions from fiscal 2010 through fiscal 2015, these actions accounted for 18% of all SEC monetary penalties and
disgorgements during the period.
- The SEC has increasingly utilized administrative proceedings. In fiscal 2015, 76% of the SEC’s actions against public company defendants were
brought as administrative proceedings. The use of administrative proceedings by the SEC to seek penalties, which was enabled by the passage of
Dodd-Frank in 2010, has resulted in more streamlined and more prompt decisions according to the SEC. It is worth noting that the use of administrative
proceedings is under attack, with many critics questioning the constitutionality of the proceedings. The resolution of these challenges may negatively
impact the number and type of cases that are brought administratively by the SEC.
This report provides evidence of the powerful impact of law enforcement following the passage of Dodd-Frank, highlighting the SEC’s determination to
utilize all tools at its disposal in order to prevent corruption and to seek out wrongdoing wherever it occurs.
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.