Federal Securities Law Blog : Federal Securities Lawyer & Attorney : Porter Wright Law Firm : Securities Exchange Law : Serving Ohio, Washington DC, Florida

On August 21, 2012, the Securities and Exchange Commission ("SEC") announced that it has paid out the first award under its whistleblower award program, which was established under the 2010 Dodd-Frank Act  a little more than a year ago.  The SEC established the whistleblower program to allow it to award between 10% and 30% of the money it collects in an enforcement action to individuals who provide information of securities fraud that significantly contributes to the SEC enforcement action in which more than $1 million dollars in sanctions are imposed.  In the first action, the SEC awarded an unidentified whistleblower $50,000 for significant information that lead to an enforcement action that stopped a multi-million dollar fraud.  In that enforcement action, the court imposed sanctions of $1,000,000 of which $150,000 has been paid to date.  The SEC noted that the award recipient "provided documents and other significant information that allowed the SEC’s investigation to move at an accelerated pace and prevent the fraud from ensnaring additional victims."  In a second action, the SEC denied an award in the same action because "the information provided did not lead to or significantly contribute to the SEC’s enforcement action.

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An article by Scott Patterson and Jenny Strasburg in the Wall Street Journal today revealed that, during an investigation of Pipeline Trading Systems LLC, an SEC attorney showed a witness a notebook which included handwritten notes from a whistleblower, and the witness recognized the handwriting and was able to tell his employers who the whistleblower was. The Whistleblower agreed to speak to the Journal and be identified, and detailed how he was treated both before and after he blew the whistle on Pipeline's activities.  UPDATE: As discussed below, the SEC denies inadvertently disclosing the whistleblower's identity.  

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In a February 3, 2012 Opinion, the First Circuit Court of Appeals reversed a Massachusetts federal court decision and held that, while the whistleblower protections of the Sarbanes-Oxley Act apply to employees of "public companies" (i.e., a company with registered securities or one that files reports under Section 15(d) of the Exchange Act), they do not apply to an employee of a contractor or subcontractor of such a public company.

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Today, the Federal Securities Litigation Blog continues its with its larger-than-usual blog entry examining the Top 10 securities litigation stories that were the most intriguing in 2011. As mentioned yesterday, like any sort of Top 10 list, not everyone will agree. Other bloggers will have their own lists with different stories. But on a personal basis, these stories that fascinated me – like a good book, I look forward to the next "chapter" in these stories in 2012.

Here's a quick headline look at the Top 5:

5. The SEC's Inspector General Reports on the Conduct of the Commission Staff.

4. Insider Trading at Galleon Management: Record-Setting Results.

3. The New Whistleblower Rules: Do I Tell Management Before I Tell The SEC?

2. The Lindsey Manufacturing Saga: The Verdict DOJ was "Fiercely Committed" to Obtaining is Vacated.

1. The Citigroup Case: Judge Rakoff's Decision and the Potential Impact on How SEC Cases Proceed.

These five stories are discussed in greater detail after the jump.

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The SEC's Office of Whistleblower has released its first Annual Report on the Dodd-Frank Whistleblower Program for Fiscal Year 2011. The Report (available here) points out that because the Final Rules became effective August 12, 2011 (discussed here), there were only seven weeks of whistleblower tip data available for fiscal year 2011. The Report includes an Appendix, which list by subject matter and month, the 334 whistleblower tips received from August 12, 2011 through September 30, 2011. The most common complaint categories were market manipulation (16.2%), corporate disclosures and financial statements (15.3%), and offering fraud (15.6%).

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Sean McKessey, the Chief of the Office of the Whistleblower at the SEC, spoke at a panel discussion regarding the Foreign Corrupt Practices Act on Tuesday morning. Mr. McKessey commented on the efforts of his office to date and responded to questions regarding a number of issues.

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Two recent posting in the blogosphere discuss the long-threatened Congressional efforts to roll back the impact of the Dodd–Frank Wall Street Reform and Consumer Protection Act. First, a post from Jim Hamilton's World of Securities Litigation discusses Congressional efforts to repeal specific regulations and pass fundamental and structural reform of the federal rulemaking system. Second, Broc Romanek of theCorporateCounsel.net Blog has a post which discusses the Whistleblower Improvement Act of 2011, which will require whistleblowers to report matters to his or her employer before reporting to the SEC.

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The Commodity Futures Trading Commission has adopted its Final Rules to implement a whistleblower program mandated by the Dodd-Frank Act. The CFTC stated that it sought to harmonize its rules with those recently adopted by the SEC.

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The SEC announced that its Whistleblower Rules, adopted on May 25, 2011 became effective today and the Commission launched its new web page (here) for that particular office.  In addition, in his first speech since being appointed as Chief of the Office of the Whistleblower, Sean McKessey addressed some misunderstanding about certain hotly debated issues related to the whistleblower program.

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At an open meeting on Wednesday morning, the SEC adopted final rules to implement Section 922 of the Dodd-Frank Act regarding securities whistleblower incentives and protection. One of the significant highlights of the final rules is that the Commission has sought to struck a compromise between the importance of the corporation's compliance programs on the one hand, and the incentive for the whistleblower to report directly to the SEC (and by-pass the corporation) on the other hand. The SEC's Press Release announcing the adoption of the rules (and providing a brief summary) is here, while a copy of the SEC's Release and the rules themselves are available here.

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