Labaton Sucharow Whistleblower Tips SEC in Groundbreaking Enforcement Action

Jordan Thomas -

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 program.

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.

SEC Announces Fiscal Year 2015 Enforcement Results: Innovative Actions to Fight Corruption

Jordan Thomas -
The SEC just released its fiscal year 2015 results, which highlight the Commission’s stalwart determination to protect investors, hold companies and executives responsible for misconduct, and demand integrity in our financial markets. The SEC’s enforcement approach brought an amazing breadth and depth of cases spanning the entire securities industry. The Commission filed 807 enforcement actions, a nearly 7% increase from fiscal 2014, and obtained orders totaling approximately $4.2 billion in disgorgement and penalties.  

The SEC’s Whistleblower Program continued to grow in fiscal 2015, awarding approximately $38 million to whistleblowers. The program’s many accomplishments included a case where Labaton Sucharow represented the whistleblower, in which the agency issued the maximum award in the SEC’s first retaliation case as well as a landmark action against a company for the use of confidentiality agreements to impede whistleblowers from communicating with the SEC. The evidence is clear: even as corporations seek to block its progress, this revolutionary program continues to gain momentum and make a huge impact on the industry.

The year also witnessed numerous other first-of-their kind cases as well as innovative leveraging of data and quantitative analytics by the SEC. The fiscal summary offers an extremely encouraging look at the SEC’s hard-driving quest to hold the securities industry accountable and ferret out corruption in all sectors, at all levels. And this year’s results make a powerful statement about the strength of the SEC’s enforcement efforts today and in the future.

Whistleblowers Coming Forward in Huge Numbers: Boston SEC Reports Flood of Tips

Jordan Thomas -
In highly encouraging news for investors and market integrity, the SEC’s Boston regional director, Paul Levinson, recently told Law360 that the agency’s Whistleblower Program is yielding a “steady fire hose” of fraud tips and having a remarkable effect on the culture of the financial services industry in New England.

The Boston area’s success is just the latest evidence of the Whistleblower Program’s tremendous and growing power. The most recent annual report from the Office of the Whistleblower revealed record numbers in both the number and dollar value of awards granted to individuals.

Whistleblowers are bravely coming forward – and are doing so in droves.

In just over four years, the program has gained traction against deep and systemic corruption.  While the decision to come forward is never taken lightly, we are heartened to see that so many truth- tellers feel empowered to do so. To learn more about the specific protections and benefits offered by the SEC Whistleblower Program, please see here.

New Justice Department Policy Targets Wall Street Fraudsters

Jordan Thomas -
Following criticism and public concern over the lack of prosecutions against individuals involved in the financial crisis, the Department of Justice recently released guidance that underscores a renewed effort to charge individuals in corporate wrongdoing. The memo, which sets forth best practices for federal prosecutors, makes clear that a company should be considered cooperative in an investigation only if it offers information about the individual employees involved in wrongdoing.

The policy memo arrives amidst recent public dispute among SEC directors regarding investigating and prosecuting individuals involved in financial fraud. Given the slew of multibillion dollar settlements involving nearly all of Wall Street’s major firms in the last few years, concern has grown that financial penalties are viewed as a tax write-off, not a powerful deterrent to misconduct. As SEC Chairman White stated in a speech last year, “A company, after all, can only act through its employees and if an enforcement program is to have a strong deterrent effect, it is critical that responsible individuals be charged, as high up as the evidence takes us.”

The reality is, finding and building cases against individuals is incredibly difficult. These cases are hampered by corporations utilizing massive financial resources to defend executives, the difficulties of gathering evidence from multiple, sometimes foreign, jurisdictions, and corporate structures themselves which are often designed to protect senior officials. Indeed, just last year, while French banking giant BNP Paribas was fined nearly $9 billion for processing financial transactions through countries subject to U.S. sanctions, the Justice Department maintained that the bank withheld records that might have implicated individual employees until after the deadline to file individual charges had passed. The odds are seemingly stacked in favor of corporations.

Whistleblowers fundamentally alter these odds.

As federal law enforcement renews its efforts to bring down the bad actors behind these devastating frauds, we must keep in mind that whistleblowers may be the sharpest tool in the enforcement arsenal. By exposing high-level insiders with detailed accounts of wrongdoing, whistleblowers can provide authorities with early and actionable intelligence. Dodd-Frank has deputized us all to act as the government’s eyes and ears. Empowered with an army of courageous witnesses, federal prosecutors and enforcement lawyers will build formidable cases that ferret out wrongdoing and promote a corporate marketplace where integrity is the price of admission.

SEC Stakes Ground: Internal Reporting Triggers Whistleblower Protections

Jordan Thomas -
In addition to the case we described in an earlier post, in which the Commission filed an amicus brief on behalf of an internal whistleblower, in a significant move to protect whistleblowers at large, this month the SEC issued interpretive guidance to clarify that Dodd-Frank anti-retaliation provisions apply equally to those whistleblowers who report potential violations internally.

The SEC’s expansive view on whistleblower protections essentially confirms that to qualify for Dodd-Frank anti-retaliation protections, a whistleblower may report potential violations to the SEC directly or internally through an employer’s compliance channels. According to the SEC, the clarification “avoids a two-tiered structure of employment retaliation protection that might discourage some individuals from first reporting internally in appropriate circumstances and, thus, jeopardize the investor-protection and law-enforcement benefits that can result from internal reporting.”

While many organizations work hard to build credible ethical cultures, over the last few years, we have witnessed increasing efforts by some organizations to dismantle and deter the landmark reforms of Dodd-Frank. Indeed, through the use of secrecy agreements, legal bullying, and the creation of omerta cultures, some companies aggressively discourage whistleblowers from reporting misconduct.

This must stop.

Last year, we, along with the Government Accountability Project and 250 other organizations, submitted a petition urging the SEC to, among other things, engage in rule-making to clarify and strengthen whistleblower protections. By issuing this guidance on internal reporting, the SEC has sent a clear message that it will do just that. We applaud this action by the SEC and its clear aim to protect and encourage whistleblowers.

SEC Sides With Corporate Whistleblower on Key Issue of Protection

Jordan Thomas -
In an important case for whistleblower advocacy, last week, the SEC filed an amicus brief in California federal court contending that employees need not report misconduct directly to the government to qualify for whistleblower protection under Dodd-Frank. The underlying case involves a lawsuit filed by the former general counsel of Bio-Rad Technologies Inc. who claimed that he was terminated after voicing concerns about potential violations of the Foreign Corrupt Practices Act (FCPA). The company ultimately paid $55 million to settle the SEC’s charges.

While courts have generally sided with the SEC holding that a whistleblower need not report misconduct directly to a government agency to qualify for the anti-retaliation protections afforded by Dodd-Frank and Sarbanes-Oxley, in 2013, a federal appeals court ruled the other way. In all likelihood, the question of what triggers whistleblower protections will be an issue of ongoing debate in the courts that may go to the highest court in the land.

In many ways, this case and those like it are almost academic battles that will ultimately establish key legal precedent. So what’s a whistleblower to do? The key takeaway from the Bio-Rad matter is that individuals who wish to report misconduct would be wise to consider an early or simultaneous report to the SEC to assure eligibility for the protections guaranteed by statute to all whistleblowers.  Even a cursory filing of original information may be sufficient. In the long run, corporate compliance programs are a critical first line of defense against corporate wrongdoing. But for those defenses to work, whistleblowers must be encouraged and protected when they use them.

SEC Issues Whistleblower Award to Former Company Officer

Jordan Thomas -
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.

Location, Location, Location: The Geography of an SEC Whistleblower

Jordan Thomas -
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.

Historic Year for Whistleblowers, Report Confirms

Jordan Thomas -
The SEC Office of the Whistleblower has just released its report to Congress chronicling the program’s success over the last year. The data is extremely encouraging, serving as an apt reminder that a quiet revolution in law enforcement is underway, powered by whistleblowers who dare to speak out against misconduct. Highlights from this year’s report include 3,620 whistleblower tips - an increase of more than 20% in the number of tips in just two years. The SEC made 9 whistleblower awards in FY2014, the largest of which exceeded $30 million. The balance of the Investor Protection Fund at the close of the fiscal year was an astonishing $437 million! Tips came in from every state in the union and 60 countries, including a significant number of submissions from the UK, India, Canada and China. The report also highlighted the Agency’s new muscle, flexed in its case against Paradigm Capital (where I represented the whistleblower), in which the SEC used its new authority to bring anti-retaliation cases against entities seeking to undermine whistleblowers.

Gearing Up for Annual Report, White Touts Whistleblower Program’s Success

Jordan Thomas -
As we await the Annual Report of the SEC Office of the Whistleblower—expected in mid-November—Mary Jo White categorically praised the program, citing its 'enormous success’ in generating information about significant securities violations. (See the FY 2013 Annual Report here.) In her address last week to the Ontario Securities Commission, which is considering the implementation of an incentive-based whistleblower program, White remarked that there was “no question” the US agency had achieved more with the program than it could have without it.

In FY 2014, the SEC awarded some $35 million to 9 whistleblowers, including the largest award to date, more than $30 million paid to a whistleblower living in a foreign country. Notably, that award represented less than the 30% maximum allowed under the program—because the whistleblower delayed coming forward to the SEC.

So while we share the agency’s enthusiasm, and salute a record-setting year, we are mindful that our work to educate whistleblowers continues. For more information on who can be a whistleblower and why timing matters in reports to the SEC, please feel free to see this video or to reach out to us directly.

By Jordan A. Thomas and Jennifer D. Larson