Can I anonymously report possible securities violations to the SEC?
Absolutely. In fact, the ability to report possible misconduct anonymously is one of the most important pillars of the SEC Whistleblower Program. To do so, a whistleblower must be represented by an attorney.
Since our clients tend to be senior executives with a lot to lose and the best protection against retaliation and blacklisting is anonymous reporting, approximately half of our clients file their SEC whistleblower submissions anonymously. Leveraging our decades of SEC and DOJ enforcement experience, we take extra measures to further protect our clients’ anonymity, including carefully considering where to file their whistleblower submissions and what supporting information and materials to provide the SEC. We also use sophisticated investigative reporting techniques to facilitate our clients’ anonymous communications with SEC Staff during the Commission’s investigation and any related litigations to enhance the probability of success and the size of future monetary awards.
I’m not sure if the misconduct constitutes a securities violation. What should I do?
Under the SEC Whistleblower Program, whistleblowers may report possible securities violations that have occurred, are ongoing, or are about to occur—even if ultimately mistaken or the concerns cannot be corroborated.
At Labaton Sucharow, on behalf of our SEC Whistleblower Program clients, we call upon vast SEC enforcement knowledge and investigative experience to confirm the existence of securities violations, determine the significance of those violations and leverage our proprietary resources to advise potential SEC whistleblowers. We have also made some of these resources available on this website.
Are SEC whistleblowers required to report internally before going to the SEC?
No. SEC whistleblowers are incentivized, rather than required, to internally report possible securities violations. Under the SEC Whistleblower Program, potential whistleblowers are deemed to be in the best position to determine whether internal reporting would be safe and effective. For whistleblowers that report internally, the Commission offers larger SEC Whistleblower Program awards and other procedural benefits.
That said, while many organizations have effective compliance programs, not all companies and not all internal reporting systems are created equally. It may be beneficial to consult with an SEC Whistleblower attorney to discuss if, when and how to internally report suspected misconduct.
If I signed a confidentiality or non-disparagement agreement with my employer, can I still be an SEC whistleblower?
Yes. As a general rule, agreements that restrict or discourage SEC whistleblowers from reporting possible securities violations are unenforceable and may constitute a violation of law. In recent years, using a variety of employment, severance and settlement agreements, companies have become more aggressive in their efforts to discourage employees from reporting violations to law enforcement and regulatory authorities. Deeply troubled by these practices, Labaton Sucharow partnered to lead a large coalition of public interest organizations to petition the SEC to use its tremendous power to stop these bad actors. As a result, the SEC has recently brought several high-profile enforcement actions against companies that use these illegal secrecy agreements, including the landmark $415 million case against Merrill Lynch originated by a group of Labaton Sucharow whistleblowers.
Can former employees and company outsiders participate in the SEC Whistleblower Program?
Yes. The employment status of whistleblowers is not important, only whether an individual has original information about possible securities violations. While being an eyewitness or having evidence of a securities violation is ideal, it is not required to participate in the program. For example, we represented financial analysts who reported accounting fraud at a publicly traded company. Orthofix was forced to restate its financials and pay a significant monetary sanction to the SEC.
As of May 2017, 72% of Labaton Sucharow’s SEC Whistleblower Program clients were current or former employees and 28% were company outsiders.
Can individuals jointly file an SEC Whistleblower Program tip?
Under the SEC Whistleblower Program, one or more individuals are permitted to jointly file a whistleblower submission. Over the years, we have represented several groups of SEC whistleblowers, most notably, the group of whistleblowers responsible for the recent $415 million case against Merrill Lynch.
What employment protections are available to SEC whistleblowers?
Powerful ones. When the handful of SEC officials—including our partner Jordan Thomas—set about drafting the key provisions of the SEC Whistleblower Program, they knew that meaningful employment protections were necessary for the long-term success of the program.
The resulting law is clear: An employer cannot discharge, demote, suspend, threaten, harass or discriminate against whistleblowers who report possible securities violations. These protections exist regardless of whether or not the reported securities violations are proven, as long as the SEC whistleblowers reported in good faith. Importantly, the SEC has made it clear that it will use its new authority to take action against employers that retaliate against SEC whistleblowers. At Labaton Sucharow, we saw this first-hand representing the first SEC whistleblower whose company, Paradigm Capital Management, was charged by the SEC with unlawful retaliation. Since the law is unsettled, depending upon the jurisdiction, reporting possible securities violations internally only may not be considered a protected activity. In these jurisdictions, it would be wise for whistleblowers to simultaneously report possible violations to their company and the SEC.
What if I was involved in the misconduct and now wish to report to the SEC?
That’s a good, brave step.
The truth is, it’s not uncommon that individuals with the greatest ability to help law enforcement have some potential liability. With this in mind, the SEC Whistleblower Program allows for whistleblowers with potential culpability to report securities violations. In fact, only individuals who have been criminally convicted of related wrongdoing are barred from receiving an SEC whistleblower award. All other less culpable whistleblowers may receive an award, but it will be reduced based upon their level of culpability. For instance, individuals who initially were unaware that they were assisting others in committing securities violations or were pressured by their superiors to engage in the violations may be eligible to participate in the program.
Due to our extensive SEC and DOJ prosecutorial experience, we regularly advise potential SEC whistleblowers with criminal or civil liability. And, in keeping with our firm’s ‘history of firsts,’ we are proud to have represented the first SEC whistleblower to receive criminal immunity.
What if I’m not a US citizen?
Citizenship is not a factor; foreign nationals are encouraged and regularly participate in the SEC Whistleblower Program. In fact, whistleblowers from more than 100 countries have submitted tips to the SEC and, in 2014, the agency announced an award of more than $30 million to an international whistleblower!
At Labaton Sucharow, as of December 2020, approximately 11% of our SEC Whistleblower Program clients were foreign nationals. In representing international whistleblowers, we have traveled abroad to meet, conduct due diligence and collect additional evidence of wrongdoing. For SEC briefings and the related prep sessions, we have paid our clients’ travel expenses to the United States.
Can gatekeepers—such as officers, directors, attorneys, accountants or compliance professionals—participate in the SEC Whistleblower Program?
Yes. After the financial crisis and the serial misconduct that preceded it, Congress and the Commission wanted to ensure that knowledgeable individuals were empowered and encouraged to report possible securities violations to the SEC. As such, if they satisfy additional procedural requirements, gatekeepers are eligible to participate in the SEC Whistleblower Program. In fact, we represented the first officer of a public company to receive an SEC Whistleblower Program award. Due to the high-stakes and special procedural requirements, potential SEC whistleblowers who serve as gatekeepers may wish to review our related Thomsen Reuters webinars and articles in prominent trade publications.
What if I am aware of possible securities violations, but I don’t have first-hand knowledge or evidence of the wrongdoing?
Individuals with information derived from independent knowledge or independent analysis are eligible to participate in the SEC Whistleblower Program. SEC whistleblowers who provide information about possible securities violations based upon independent analysis are often outsiders without first-hand knowledge or direct evidence of the wrongdoing. These whistleblowers may have garnered the information from business relationships, social interactions or through their analysis of publicly available information. While tips from insiders or individuals with direct evidence of securities violations are more likely to be investigated by the SEC staff, the SEC does investigate high-quality tips from outsiders and has granted them several SEC Whistleblower Program awards.
As of May 2017, 28% of our SEC Whistleblower Program clients were not employed by the defendant company.
Can SEC whistleblowers take evidence of possible securities violations from their companies and provide it to the SEC?
This is tricky legal terrain and prospective whistleblowers should consult with an attorney to understand what non-privileged evidence can be taken out of a company, the best practices for obtaining that evidence, and how that evidence needs to be handled. As a general rule, SEC whistleblowers are permitted to provide evidence of possible securities violations to the Commission. Many of Labaton Sucharow’s strongest whistleblower cases include large collections of company documents and covert recordings. But talk to a lawyer first. Failure to do so may undermine a future whistleblower case and result in unnecessary litigation with the employer.
Is there evidence SEC whistleblowers should not share with the SEC?
Determining what to share with the Commission is critically important and is another complex area where an experienced SEC Whistleblower lawyer can be very helpful.
For example, whistleblowers should never share legally privileged information or materials with the SEC. In this context, the most common privileges are the Attorney-Client Privilege and the Attorney Work Product Privilege. As a general rule, if an attorney was involved in the communication or the creation of a particular document, a privilege analysis should be conducted.
Another example relates to maintaining anonymity. SEC whistleblowers who wish to remain anonymous must carefully eliminate potentially identifying information from all SEC communications and filings. Even if the initial whistleblower submission was anonymous, subsequent disclosures of potentially identifying information may make it difficult or impossible for the SEC Staff to protect a whistleblower's identity. Several years ago, a whistleblower’s identity was unintentionally revealed when, during an SEC investigation, a company executive was presented with documentation and recognized the whistleblower’s handwriting. Having spent years in the trenches investigating and overseeing sensitive SEC and DOJ enforcement cases, we at Labaton Sucharow know how to avoid such mishaps.
How do I know if the SEC is investigating my tip?
You may not know. The Commission is not required to notify SEC whistleblowers if their tips are being investigated. While contact from the Office of the Whistleblower may be a positive development, investigative determinations are only made by the Enforcement Division. Given our partners' experience in that division, we can assure whistleblowers that the most reliable indicator that a tip is being investigated is contact directly from an investigative team in the Enforcement Division. While the amount of time it takes for SEC whistleblower tips to be assigned to an investigative team varies, it is unlikely that a tip is being investigated if the SEC whistleblower or their counsel has not been contacted within six months of filing.
As of December 2020, more than 80% of our clients were contacted and invited to brief investigative teams within six weeks of filing.
During an SEC investigation, can whistleblowers get updates on the case?
While it can be frustrating, by law, SEC investigations are confidential and non-public. Generally, the SEC Staff will provide information and materials to SEC whistleblowers on a need to know basis only. Periodic updates are not typical. There are special cases where the SEC Staff may more freely share information and materials with whistleblowers that sign a confidentiality agreement with the Commission, but those circumstances are rare.
With their combined decades of work as senior federal prosecutors who built complex securities fraud cases from the ground up, our partners understand the protracted timeline from both sides and can provide our clients with a measure of insider insight, calm and confidence.
If the SEC doesn’t investigate or prosecute possible violations reported by SEC whistleblowers, what can be done?
Unfortunately, not much. Whistleblowers do not have an independent right to bring an SEC enforcement action and have no say in the SEC settlements of those cases. The Commission retains full prosecutorial discretion regarding which cases to investigate, prosecute or settle. It can be particularly difficult for whistleblowers if the SEC Staff declines to open an investigation or closes an investigation without bringing charges against the wrongdoers. By way of response, some SEC whistleblowers attempt to gain leverage by reporting their concerns to members of Congress or the media. Such attempts are almost always unsuccessful and can be counter-productive or violate employer confidentiality agreements. The best strategy for SEC whistleblowers is to attempt to provide the Staff with significant new evidence that will lead to the opening or re-opening of an investigation into the reported securities violations.
As of December 2020, all of Labaton Sucharow whistleblower clients’ tips have resulted in an inquiry, investigation or examination by the SEC Staff.
Can I file an SEC Whistleblower Program tip without legal counsel?
Absolutely. Anyone can report possible securities violations to the SEC directly without hiring a lawyer. However, if a whistleblower wishes to remain anonymous, pursuant to the program rules, they must retain a lawyer.
What should potential SEC whistleblowers look for when selecting legal counsel?
The attorney-client relationship is so important. In our minds, “fit” is key. Given that SEC investigations can take 2-4 years to complete and the award application process can take an additional 2-3 years, this is a long and critically important relationship that is bedrock during an intense and complicated time. Whistleblowers work closely and collaboratively with their lawyers, so you should like and trust them.
Experience is also a key factor. It’s important to look at subject matter expertise, in securities law, particularly garnered in the trenches of law enforcement. Of course, a successful track record in SEC whistleblower matters is another key barometer.