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.

Recent Whistleblower Award: Timing Matters

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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.”

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.

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

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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.

Another Victory for Whistleblowers: Federal Appeals Court Rules that Internal Reporting Triggers Protections

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In another significant victory for the SEC and for whistleblowers, the U.S. Court of Appeals for the Second Circuit reversed a lower court and ruled that whistleblowers who report potential wrongdoing to their company prior to reporting to the SEC are entitled to the robust employment protections established under Dodd-Frank. As we discussed in an earlier post, the SEC issued guidance in August to clarify that Dodd-Frank anti-retaliation provisions apply equally to those whistleblowers who report potential violations internally. Given that at least one other court has ruled in an opposing way, the issue might be on its way to the Supreme Court for review.

In the meantime, this more expansive view of whistleblower protections not only empowers corporate whistleblowers, it also serves as an important reminder that companies must develop and encourage internal policies and procedures for the reporting of misconduct. For several years, we have examined the growing ethical crisis in corporate America and the crucial role truthtellers must play if we wish to reverse the prevalence of win-at-any-cost corporate cultures. With enhanced protections for whistleblowers, companies must shift their focus from silencing and retaliating against whistleblowers to establishing compliance programs that more effectively detect, deter and mitigate wrongdoing.

Deciding when, if and how to blow the whistle is an extraordinarily complex decision. Please see this short video for some of the key issues to consider. And, for more information on the specific employment protections offered by the SEC Whistleblower Program, please see here.

SEC Stakes Ground: Internal Reporting Triggers Whistleblower Protections

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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

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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.

Historic Survey Sounds the Alarm: We’re Losing the Ethical Battle, Wall Street

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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.

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.

SEC Issues Whistleblower Award to Former Company Officer

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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.