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Category Archives: Whistleblower Issues

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Whistleblowers wanted; Holder seeks increased compensation for financial crime informants

Posted in Corporate Governance, Whistleblower Issues

In the first major public comment about white collar crime in more than a year, the Department of Justice (DOJ) called for an increase in compensation for whistleblowers under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). Senior DOJ officials, in three separate speeches, appealed to whistleblowers to come forward with information about crimes and suggested that compensation levels were too low to entice executives in the financial industry to report wrongdoing.

Attorney General Eric Holder, while speaking at New York University, suggested that Congress increase awards in cases involving banks and financial institutions. Under current law, FIRREA caps whistleblower awards at $1.6 million. Holder noted that under the False Claims Act (FCA), tipsters who provide information to law enforcement concerning wrongdoing can receive compensation at a level of 25 percent to 30 percent of the recovery received by the government.

Holder cited that in an industry that included a collective bonus pool of $26 billion and a median executive pay of $15 million, a “paltry” windfall of $1.6 million is “unlikely to induce an employee to risk his or her lucrative career in the financial sector.” Holder suggested that increased awards could improve the DOJ’s ability to gather evidence of wrongdoing “while complex financial crimes are still in progress — making it easier to complete investigations and to stop misconduct before it becomes so widespread that it foments into the next crisis.”…


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Corporate law must reads — excerpts from the Federal Securities Law Blog

Posted in Corporate Governance, Proxy Issues, SEC News, Whistleblower Issues

In the ever-changing world of corporate law, it’s important to have trusted resources that can keep an eye out for how the relentless evolution of regulation and legislation can affect business operations, governance, strategy and growth. Our goal is for the Federal Securities Law Blog, and the Porter Wright attorneys who contribute to it, to be one of those resources. We invite you to read our most recent e-book, which provides updates about recent federal rules changes that can have an impact on your business. Download the Corporate Must Reads e-book.…


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U.S. Supreme Court extends whistleblower protection to employees of a public company’s private contractors

Posted in Sarbanes-Oxley Act, Whistleblower Issues

In a 6-3 decision, the U.S. Supreme Court decided earlier this week that whistleblower protection under the Sarbanes-Oxley Act of 2002 includes employees of a public company’s private contractors and subcontractors. In Lawson v. FMR LLC, the court, in a majority opinion written by Justice Ginsburg, concluded that extending protection to employees of a contractor was consistent with the purpose and intent of Sarbanes-Oxley: to protect investors and restore trust in financial markets.

As background, plaintiffs Lawson and Zang separately initiated lawsuits against their former employer, a privately held company that provided advisory management services to the Fidelity family of mutual funds. The mutual funds were not parties to the action because, as is common in the mutual fund industry, the Fidelity funds had no employees. Instead, the funds contracted with investment advisors like FMR to handle the day-to-day operations of the funds. After they were terminated, Lawson and Zang alleged that they were fired in retaliation for raising concerns about cost accounting methodologies and inaccuracies in SEC registration statements for the funds. FMR sought to have the actions dismissed, but those motions were rejected by the trial court.

In a 2-1 decision, the U.S. First Circuit Court of Appeals reversed the trial court and found that the whistleblower protections of Sarbanes-Oxley were available only to employees of the public companies, and did not cover a contractor’s employees.

In deciding that whistleblower protection extended to contractors of public companies, the Supreme Court focused on a narrow provision of Section …


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SEC Makes First Whistleblower Award

Posted in SEC News, Whistleblower Issues

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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Wall Street Journal Article Details How SEC Inadvertently Revealed The Identity of A Whistleblower During An Investigation UPDATED On April 27, 2012

Posted in SEC Enforcement Cases, Whistleblower Issues

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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First Circuit Rules That SOX Whistleblower Protections Do Not Apply to Employees of a Contractor or Subcontractor of a Public Company

Posted in Sarbanes-Oxley Act, Whistleblower Issues

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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The Top 10 Most Intriguing Federal Securities Litigation Stories in 2011 (Part 2 of 2)

Posted in Criminal Charges in Securities Cases, Foreign Corrupt Practices Act, Insider Trading, Market Crisis Cases, SEC Enforcement Cases, SEC News, SEC Settlements: Policy, Issues and Disputes, Trends, Whistleblower Issues

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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SEC Whistleblower’s Office Releases First Annual Report Including a Snapshot of the Types of Tips Received Thus Far

Posted in SEC News, Whistleblower Issues

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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New Bills Proposed in Congress to Impact Dodd-Frank and Whistleblower Provisions

Posted in Dodd-Frank Act, Whistleblower Issues

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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SEC Launches Website For The Office of the Whistleblower As Rules Become Effective

Posted in Dodd-Frank Act, SEC News, Whistleblower Issues

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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SEC Adopts Final Whistleblower Rules

Posted in Dodd-Frank Act, SEC News, Whistleblower Issues

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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