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Ultimate Resource On Government And Corporate Whistleblowers (#GotBitcoin?)

One of the tipsters received $37 million, the third-largest award in the history of the agency’s whistleblower program. Ultimate Resource On Government And Corporate Whistleblowers (#GotBitcoin?)

Two whistleblowers received a total of $50 million for providing information that helped the Securities and Exchange Commission pursue a case of corporate wrongdoing, the agency said Tuesday.

The case is related to a December 2015 settlement with JPMorgan Chase & Co., according to law firm Labaton Sucharow LLP, which represented one of the whistleblowers. In the case, the New York-based bank agreed to pay $307 million to settle charges it failed to disclose conflicts of interest to its wealth management customers.

The agency granted $37 million to one whistleblower—the third-biggest individual whistleblower award granted by the SEC—and $13 million to the other.

The SEC didn’t disclose details of the case in a news release or provide identifying details about the whistleblowers.

One tipster received $50 million in March, and another received $39 million in September, according to the SEC.

Updated: 6-1-2020

Tips To SEC Surge As Working From Home Emboldens Whistleblowers

Over 4,000 reports of potential wrongdoing poured in from mid-March to mid-May. ‘These people have more time on their hands,’ a lawyer says.

A new side effect of remote working, layoffs and furloughs stemming from the coronavirus pandemic: more whistleblowers.

The U.S. Securities and Exchange Commission received about 4,000 tips, complaints and referrals of possible corporate wrongdoings from mid-March to mid-May, said Steven Peikin, co-director of the SEC’s enforcement division. That number is 35% higher than it was in the same period last year. The tips have led to hundreds of new investigations—“many Covid-19 related, but many in other traditional areas,” Mr. Peikin said in a recent speech.

Lawyers chalk up the increase to the fact that many would-be tipsters are working from the privacy of their home, out of view of snooping colleagues and managers and thus safer from being exposed as whistleblowers. Tipsters might also feel less concerned about retaliation if they are not interacting regularly with their managers, lawyers say; if they have been furloughed or laid off, they might feel even less so.

“These people have more time on their hands,” said Christopher Connors, a managing attorney at the Connors Law Group in Chicago, whose team has taken on at least seven new whistleblower clients since the end of February—a big increase for the firm. “They don’t have to go see their bosses, and they may feel a bit more emboldened to report,” he said.

When employees face pressure to meet goals during difficult financial times, the likelihood of wrongdoing can increase. Anticorruption organizations have warned that the current economic tumble could create an environment ripe for bribery.

In recent months, Mr. Connors’ clients have raised red flags on possible foreign corruption in health care, pharmaceuticals and technology to the SEC, the Justice Department and the Federal Bureau of Investigation.

Stuart Meissner, an attorney at Meissner Associates in New York, said some of the whistleblower cases brought to him are connected to the pandemic, such as small, public companies promoting home-testing kits that were allegedly fictional. Others presented more typical infractions such as money-laundering, insider trading, accounting gambits and bankruptcy fraud, unrelated to the pandemic, he said.

The economic spiral following coronavirus lockdowns is likely a factor in the rise in calls and reports he has received in recent weeks, he said.

“This caused companies to do things—whether they worry about survival or failures—that often lead to people doing wrong,” said Mr. Meissner, who said he has filed five complaints on behalf of clients to the SEC.

A record number of whistleblower awards from the SEC this year may also have incentivized more people to report wrongdoing, said Rebecca Katz, who leads the whistleblower litigation team at Motley Rice LLC in New York.

Under SEC rules, a whistleblower can get between 10% and 30% of the fines levied in SEC civil enforcement actions that result from their tip, assuming the fines total more than $1 million.

Over $64 million was paid to whistleblowers in the seven months of the fiscal year that began in October—more than the SEC has disbursed in any full year except 2018, according to an analysis of agency records. Most of that total was awarded just since March 23.

Publicity of those awards might have tempted tipsters to come forward, Ms. Katz said.

Updated: 9-24-2020

SEC Votes To Amend Whistleblower-Award Rules

Regulator says new rules would bring efficiency and transparency to how awards are given out.

The U.S. Securities and Exchange Commission has approved amendments to the rules governing monetary awards made to whistleblowers who voluntarily report potential wrongdoing.

Commissioners voted 3-2 Wednesday to approve the amendments, with Democratic members Allison Herren Lee and Caroline Crenshaw opposing.

The long-anticipated vote, which clarifies the regulator’s discretion in determining award amounts, could change how the SEC pays out some of its largest whistleblower awards, lawyers representing whistleblowers said.

The regulator said the new rules would add clarity to its decade-old whistleblower program and bring efficiency and transparency to the award determination process, according to a statement published Wednesday.

“These amendments would allow us to devote more time and resources to the processing of meritorious award claims,” Jane Norberg, chief of the SEC’s Office of the Whistleblower, said during a meeting for the vote on Wednesday.

The SEC’s whistleblower program was enacted in 2011 as part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Under the program, a whistleblower can receive an award totaling between 10% and 30% of the fines levied in SEC civil enforcement actions that result from their tip, assuming the fines total more than $1 million. The SEC has awarded about $523 million to 97 individuals since the program began.

The commission analyzes a range of factors in determining an award amount. Some factors—such as whether the whistleblower provided firsthand information and whether a tipster assisted in an investigation—can lead to bigger awards. The SEC also weighs discounting factors, such as whether tipsters themselves are culpable in the alleged violations.

The new rules would allow the SEC to streamline the award evaluation process, particularly for certain awards of $5 million or less. The adopted amendments provide a presumption of a statutory maximum award percentage at 30% for awards that are estimated to be $5 million or less, assuming that there were no negative factors.

The SEC, which has faced complaints that it was slow to issue awards, said the move would help the agency process whistleblower claims faster and issue awards more efficiently, considering that about 75% of the awards given out in the whistleblower program have been $5 million or less.

For awards estimated to be more than $5 million, the SEC would analyze more deeply positive and negative factors in determining a final award amount, the agency said. If there are no negative factors, a tipster can expect to receive an award that is in the top third of the range, according to the final rules published Wednesday.

After considering comments from the public, the SEC said it decided not to adopt a proposed amendment that sought the authority to reduce rewards in cases involving monetary penalties of at least $100 million.

The proposal argued that the whistleblower rules at the time “do not expressly permit the commission to consider whether a relatively small or exceedingly large potential payout is appropriate to advance the program’s goals of rewarding whistleblowers and incentivizing future whistleblowers.”

The proposal might have dissuaded some would-be tipsters from reporting major securities-law violations, attorneys representing whistleblowers said when the rules were proposed in 2018.

The rule that was approved, however, “is even more problematic than the proposal,” Ms. Lee, one of the commissioners who opposed the rule, said in the meeting Wednesday.

The new rule says the SEC already “has the authority to consider the dollar amount when applying the award criteria.”

The two commissioners who opposed the new rules questioned the pre-existence of this discretion. Ms. Lee said this would create different outcomes for tipsters in cases where the only difference is the size of the fine collected by the SEC.

“Importantly, the rule will not require the commission to tell whistleblowers if or when we have exercised this discretion, that there will be no transparency and no accountability,” Ms. Lee said during the meeting.

While acknowledging the efforts by the SEC to improve the speed in issuing payouts to tipsters, lawyers representing whistleblowers are concerned about how the SEC would exercise that discretion.

“I think this is particularly problematic,” Erika Kelton, a partner at Phillips & Cohen LLP, said, noting that the consideration of the size of the payouts wasn’t a factor that Congress adopted when it enacted the law in 2010. She said her clients and potential whistleblowers are concerned about the new rules. “The rules do not bring clarity to the awards process and actually bring more uncertainty.”

“The lack of transparency as to how they would apply that discretion is troubling and could dissuade whistleblowers from coming forward,” said Jason Zuckerman, principal of Zuckerman Law in Washington.

Updated: 9-28-2020

Whistleblower In Orthofix Bribery Case Awarded $1.8 Million

SEC grants award more than three years after Texas-based medical-device company agreed to settle bribery accusations.

The U.S. Securities and Exchange Commission awarded $1.8 million to a whistleblower whose tip helped the regulator conduct an investigation that led to bribery charges against Orthofix International NV.

The regulator, which announced the award Friday, didn’t name the company nor did it identify the tipster, but lawyers representing the whistleblower said the award was connected to a 2017 bribery settlement involving Orthofix, a Lewisville, Texas, medical-device company.

The tipster, a doctor in Brazil, provided information to the SEC about an alleged kickback scheme operated by an Orthofix subsidiary in that country, according to the lawyers, Christopher Connors of Connors Law Group LLC and Andy Rickman of Rickman Law Group LLP.

The company, now called Orthofix Medical Inc., “self-reported to the SEC about these matters and cooperated fully with the government during the course of the investigations,” a spokeswoman said.

Orthofix in 2017 agreed to admit wrongdoing and pay more than $14 million to settle accusations that it improperly booked revenue in some instances and made improper payments to doctors at government-owned hospitals in Brazil from 2011 to 2013, the SEC said at the time.

As part of the total, the company agreed to pay more than $6 million to settle allegations that it violated the Foreign Corrupt Practices Act, a U.S. antibribery law that prohibits the use of bribes to foreign officials to win or keep business. Orthofix also agreed to pay an $8.25 million penalty for allegedly failing to maintain an adequate system of internal accounting controls.

The tipster first reported the potential wrongdoing to Orthofix’s executives, general counsel and auditors before providing the tip to the SEC in 2014, according to the lawyers.

The SEC, which has faced complaints that it has been slow to issue awards, this week approved amendments to whistleblower-award rules that it said would make the process more efficient and transparent.

Under the program, whistleblowers are entitled to between 10% and 30% of monetary penalties when their tips result in a successful enforcement action and when the monetary penalties total more than $1 million.

The rules amended this week were also designed to raise percentages for certain awards of $5 million or less.

The SEC initially set the award percentage in the Orthofix case at 15%, according to the lawyers. But the regulator increased the percentage this week to 30% of the $6 million FCPA settlement payment, consistent with the updated rules, Messrs. Connors and Rickman said.

The award reflected factors the SEC considers in determining award amounts, with an eye toward rewarding whistleblowers with the highest possible amount based on the circumstances of their claims, the agency said.

The amended rules are technically not in effect yet. They will become effective 30 days after they are published in the Federal Register.

The SEC on Friday issued a separate award of $750,000 to a tipster that also reported securities violations abroad. The regulator didn’t identify the whistleblower or the case connected to the award.

The regulator has awarded about $525 million to 99 people since the program began in 2011 as part of the 2010 Dodd-Frank Act.

Updated: 10-23-2020

SEC Whistleblower Program Awards Tipster A Record $114 Million

The whistleblower, who was not identified, gave the SEC and another agency ‘substantial, ongoing assistance’ critical to bringing successful enforcement actions.

The U.S. Securities and Exchange Commission’s whistleblower program on Thursday awarded more than $114 million—a record amount—to a person whose information helped it and another agency bring successful enforcement actions against a company, the agency said.

In keeping with policy, the SEC didn’t identify the whistleblower, the company or the case the award is connected to.

The award is a combination of roughly $52 million from the SEC case and another $62 million from a related enforcement action brought by the other agency alleging similar misconduct to that in the SEC case, according to the SEC.

A whistleblower can receive an award of between 10% and 30% of the fines collected in SEC civil enforcement actions and related actions from other enforcement agencies resulting from their tip, assuming the SEC collects more than $1 million.

“After repeatedly reporting concerns internally, and despite personal and professional hardships, the whistleblower alerted the SEC and the other agency of the wrongdoing and provided substantial, ongoing assistance that proved critical to the success of the actions,” Jane Norberg, chief of the SEC’s Office of the Whistleblower, said in a statement Thursday.

The award set a record for the SEC’s whistleblower program, the agency said. The next largest was a nearly $50 million award to an individual in June. Two individuals also shared a nearly $50 million award in 2018.

“This may be the largest award to a whistleblower in any whistleblower program,” Erika Kelton, a partner at law firm Phillips & Cohen LLP who represents tipsters, said in an email.

The record award comes as the SEC adopted amendments to its whistleblower program rules last month. The SEC, as part of the vote last month, clarified that it would consider the dollar amount of the potential payout as a factor in deciding the award.

The SEC’s whistleblower program, enacted as part of the 2010 Dodd-Frank Act, has awarded about $676 million to 108 individuals since it began in 2011.

Updated: 12-08-2020

Defense Bill Proposes Anti-Money-Laundering Whistleblower Program

The proposed rules would offer an award to those who report possible violations of anti-money-laundering laws to the Treasury or the Justice Department that lead to successful enforcement.

A new whistleblower reward program incentivizing the reporting of potential violations of anti-money-laundering laws would be established as part of an annual defense-spending bill that is poised to clear Congress.

The program would offer awards to tipsters who voluntarily provide original information to the Treasury Department or the Justice Department on possible violations of the Bank Secrecy Act. Awards would be granted in cases where the tips lead to successful enforcement actions and the monetary sanctions exceed $1 million.

Congress is expected to vote as soon as this week on the National Defense Authorization Act for the 2021 fiscal year.

Under the proposed rules, a tipster or joint tipsters can receive up to 30% of the monetary penalties collected in an enforcement action brought by the Treasury or the attorney general and from related actions.

The amount would be determined by factors such as the significance of the information and the degree of assistance from the tipster, according to the defense bill. The rules would also provide tipsters protection against retaliation from employers, including demotion, suspension and industry blacklisting.

The program, if enacted, would be an expansion of current incentives, observers said. Existing regulations permit the Treasury, at its discretion, to pay a reward of either $150,000 or 25% of the fine or penalty, whichever is less. Proponents of a new whistleblower program have said the existing incentives aren’t strong enough and haven’t attracted much attention.

A spokesman for the Treasury Department declined to comment.

The whistleblower program is part of the bill’s provision to improve efforts in communications and oversight in combating money laundering and terrorism financing. The bill also includes beneficial-ownership rules requiring companies in the U.S. to register their true owners.

The proposed cash-for-tips program would be a critical tool to identify and combat money laundering, said Jason Zuckerman, a lawyer at Zuckerman Law who represents whistleblowers. He said the proposed program rules are similar to those governing the Securities and Exchange Commission’s whistleblower program, which was created by the Dodd-Frank Act.

The SEC whistleblower program has awarded at least $731 million to 123 individuals. Information provided by tipsters has helped the securities regulator recover more than $2.7 billion in total monetary sanctions from enforcement actions between 2011 and the end of September, according to the SEC Whistleblower Office’s annual report to Congress.

The proposed anti-money-laundering whistleblower program could close the enforcement gaps left by existing whistleblower programs at various agencies, including those of the SEC and Commodity Futures Trading Commission, which may have limited jurisdiction over potential money laundering violations.

“Often, people aware of money laundering might have learned about it in the course of interaction with organizations that are involved in financial crimes, and stepping forward to report it is a big deal,” Mr. Zuckerman said.

Updated: 12-10-2020

Whistleblowers Worry SEC’s Interpretation of ‘Independent Analysis’ Could Discourage Tipsters

New guidance from the regulator states that a tip must offer insight ‘beyond what would be reasonably apparent’ from publicly available information.

A new Securities and Exchange Commission rule interpretation threatens to weaken the incentive for external whistleblowers to come forward with details about potential corporate fraud, tipsters and lawyers who represent them said.

The clarification, which goes into effect Monday, states that a whistleblower’s tip has to offer insight “beyond what would be reasonably apparent” to the agency from publicly available information. That worries whistleblower lawyers and tipsters who have received awards.

They fear the clarification could make it harder for tipsters from outside of a company to be awarded in a fast-growing program where the odds of getting a payout are already long.

Anyone with original information of potential financial wrongdoing can submit a tip to the SEC. The cash-for-tips program has attracted tips from company insiders as well as outside experts who scrutinize corporate filings, such as forensic accountants and Wall Street analysts.

The original rules define independent analysis as examination or evaluation of information that may be public, done by a person or group that reveals information that isn’t generally known or available.

In its new guidance, the agency said it would consider whether a whistleblower’s conclusion derives from multiple sources, “including sources that are not readily identified and accessed by a member of the public without specialized knowledge, unusual effort, or substantial cost.” The sources must also collectively “raise a strong inference of a potential securities law violation that is not reasonably inferable” from any single source.

Whistleblowers and their attorneys are concerned that the interpretation could give the commission greater scope to reject payouts and raise the bar for potential awards so high that some tipsters might be discouraged from coming forward.

“It’s a sliding scale and it’s so subjective, and I think that’s what is worrisome to me,” said Harry Markopolos, a former derivatives portfolio manager who began alerting regulators to Bernard Madoff’s multibillion-dollar Ponzi scheme years before it was publicly exposed and an advocate for creating the SEC’s whistleblower program.

Mr. Markopolos said, however, he understood why the SEC would adopt stricter language, as third-party evaluation is highly specialized work.

“It’s a higher burden of proof and it should be,” he said. Mr. Markopolos, who since Mr. Madoff’s arrest has pursued cases of alleged corporate wrongdoing and submitted at least five tips based on independent analysis to the SEC, said he doesn’t think the clarification will affect his own efforts to win an award.

The SEC program has grown rapidly since it began in 2011. The program, created by the Dodd-Frank Act, has given out at least $728 million to 118 individuals. It set a new record in the fiscal year ended Sept. 30 with 6,911 tips, and has received an average of about 4,400 annually over its nine-year history, according to a Wall Street Journal analysis of SEC data.

The odds of winning an award for somebody submitting a tip to the program were less than one-third of 1%, according to law firm Labaton Sucharow LLP.

Nine whistleblower awards have been given to individuals for providing independent analysis that led to successful enforcement actions, according to the SEC data.

Jane Norberg, chief of the SEC’s whistleblower office, said the agency recognized the “incredibly valuable” independent analysis by outsiders that helped it bring enforcement actions against companies.

“Simply providing a publicly available document is not enough,” Ms. Norberg said. “It needs to be more. It needs to reveal insight into the securities law violation that isn’t evident from the face of that public document.”

An SEC spokeswoman said “requiring additional analysis to publicly available information in order to qualify for an award is how the commission has been approaching this issue for years.”

Two Democratic commissioners who dissented during the vote for the rule amendments in September called the clarification problematic. “I worry this guidance will inadvertently impact the perception of the type of information the commission considers valuable,” Commissioner Caroline Crenshaw said at the time.

Ms. Crenshaw argued that the focus for the SEC should instead be on the quality of the information and the analysis provided by the tipster. “The amount of data and information available to the commission is extensive,” she said at the time of the vote.

“Given that, we should not focus on whether the staff could have inferred the information from what was provided, but whether the staff actually did infer the information prior to getting the submission.”

For one of the cases that Mr. Markopolos submitted to the SEC—concerning what he suspected to be a Ponzi scheme—agency staff told him the case wasn’t robust enough to meet the requirements of an independent analysis. Mr. Markopolos hired an expert in the relevant area to address the problem.

“You have to go down a lot of paths and a lot of blind paths, without success, to come out with something fruitful for a third-party independent analysis that qualifies under this program,” Mr. Markopolos said. “It’s a lot of work. Cases aren’t done in hours or days. The cases are done in months and seasons.”

The SEC hasn’t disclosed its decisions regarding the tips that Mr. Markopolos has submitted to the SEC based on independent analysis, in keeping with its policy. He has received an award from the SEC and filed at least two applications for claims of awards, he said. The SEC spokeswoman declined to comment.

Edward Siedle, a former SEC attorney who won a $48 million SEC whistleblower award in 2017 for helping provide information leading to an enforcement action against JPMorgan Chase & Co. for failing to disclose conflicts of interest, said staffing and resource limitations at the SEC mean some outside experts are better equipped to do the kind of forensic analysis that is often required to uncover wrongdoing.

Mr. Siedle, who now runs his own law office representing whistleblowers and has submitted about 20 tips to the SEC based on independent analysis over the years, said he imagined the SEC was inundated with possibly frivolous claims. But limiting awards could discourage people from coming forward, he said.

“The program is so incredibly powerful, so incredibly profitable to the SEC, so incredibly beneficial to investors, that this is not an area where you need to be concerned about cutting back on the input you’re getting from the public,” Mr. Siedle said.

SEC Whistleblower Program Sets New Records In 2020

The office paid out around $175 million in awards to 39 tipsters in the fiscal year ended in September, and received a record number—around 6,900—of tips.

The U.S. Securities and Exchange Commission’s whistleblower program set annual records, awarding more money to more tipsters in fiscal 2020 than in any other year of the program’s history.

The volume follows efforts by the regulator to speed up payouts to whistleblowers after years of complaints that it was slow to dole out awards.

“We are sending the message to people that if you bring us high-quality tips, we’re going to dig into them, and pursue actions with vigor, and then we’re going to get you a whistleblower award promptly,” SEC Chairman Jay Clayton said in an interview last Thursday.

On Monday, Mr. Clayton announced that he plans to step down at the end of this year.

The SEC’s Office of the Whistleblower issued about $175 million to 39 individuals in the fiscal year ended Sept. 30, according to the office’s annual report to Congress, which was published Monday. The total dollar amount was 4% higher than the previous record—about $168 million in fiscal 2018—and almost three times the total issued in fiscal 2019, when $60 million was distributed to eight individuals.

In the most recent fiscal year, the whistleblower’s office also issued a record 315 preliminary determinations of award claims detailing whether a tipster’s claim should be approved or denied, which is 96% more than the previous record, set in 2014—when the majority of the preliminary orders were denials issued to one claimant, according to the report.

The SEC started to review its claim-evaluation process with the goal of making it more efficient about a year and a half ago, as the regulator proposed changes to whistleblower program rules, according to Mr. Clayton.

Amendments to the whistleblower program rules, approved in September and designed to make the award process more efficient, go into effect next month.

The regulator has added staff to the program and used resources from across the SEC enforcement division, said Stephanie Avakian, director of the division, which oversees the whistleblower program.

The office now has 13 attorneys, plus three more on temporary detail, and a support staff that includes an accountant, paralegals, analysts and law clerks, according to the report. That is up from eight attorneys, three paralegals and a support specialist in 2012.

“The program, like everything else, needs to adapt over time,” Ms. Avakian said. “It’s really paid massive dividends, and I expect those dividends to only increase as time goes by.”

The SEC also received a record number of about 6,900 whistleblower tips this year—the most for any year since the program began in 2011, according to the report.

Lawyers representing whistleblowers have chalked up the increase in part to the pandemic, pointing to the fact that many would-be tipsters are working from the privacy of their home, out of view of snooping colleagues and managers and thus safer from being exposed as whistleblowers.

“There’s probably been a fair amount of uptick in things to complain about in light of Covid,” said Ms. Avakian, the enforcement chief, noting that they can’t be certain what precisely contributed to the increase and there could be multiple reasons.

Under the program, which was enacted as part of the 2010 Dodd-Frank Act, a whistleblower can receive an award totaling between 10% and 30% of the fines levied in SEC civil enforcement actions that result from their tip, assuming the fines total more than $1 million.

By Monday, the SEC had awarded about $720 million to 113 individuals since the program began.

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