SEC Fraud Whistleblower Lawsuits Fly under the Radar

Washington, DC. Insiders with information about securities fraud should know three important things before filing an SEC fraud whistleblower lawsuit: 

(1) They can only proceed through the Securities and Exchange Commission; there is no right of individual action as there is with other whistleblower protection laws;
(2) The SEC protects whistleblowers’ confidentiality and does not disclose information that could even indirectly reveal a whistleblower’s identity. As a result, most whistleblower lawsuits fly under the radar; and
(3) US securities laws can reach international corporations if that entity has US investors, investments, operations, employees, or clients.

The SEC provides only a few ways to submit a tip in order to qualify for an award under the Whistleblower Program. These are: the link on their website, fax or snailmail.

Whistleblowers are very vulnerable to reprisal, employment-related and legal. So, while whistleblowing pays a bounty and is important to the soundness of the US financial system, it is risky. Most successful whistleblowers hire an attorney to review the submission and act as an intermediary through the investigation and any related enforcement action.

SEC Press Releases about the results of tip-driven enforcement actions are terse at their most voluble. They focus on the size of the award and offer little more beyond publicly available information about the law and the process of submitting information -- just the facts, ma’am. The Office of the Whistleblower’s Notice of Covered Actions, on the other hand, hints at considerable subterranean activity. It scrupulously declines to confirm or deny the existence of tips but names the deadlines by which tipsters, should these magical beings actually exist, must apply for awards.

On August 1, 2017, for example, Cadaret, Grant & Co, Inc., a registered investment adviser and broker-dealer based in Syracuse, New York, agreed to settle charges relating to its failure to disclose conflicts of interest arising from the receipt of certain payments and fees.

On July 27, 2017, the same day that the SEC announced a $1.7 million whistleblower award, Halliburton Company agreed to pay $29.2 million to settle a case that charged the company with violating the Foreign Corrupt Practices Act (FCPA) while selecting and making payments to a local company in Angola in order to win lucrative oilfield services contracts. None of these actions necessarily involved information submitted in the context of an SEC fraud whistleblower lawsuit. The protective rule ensures that no one knows.

Finally, as evinced by the $30 million award to a whistleblower in 2014, SEC enforcement does not stop at the water’s edge. Since the SEC fraud whistleblower program’s inception, submissions have come from nearly 100 countries, including the United Kingdom, Canada, Australia, India and China. Individuals with information about financial fraud who work for foreign corporations or for domestic corporations outside the US need not be daunted. There may be redress through the SEC’s Whistleblower lawsuit program, as long as sufficient contacts with the US exist.