July 7, 2020

Volume X, Number 189

July 07, 2020

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July 06, 2020

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5 Ways that Experienced SEC Whistleblower Law Firms Can Effectively Advocate for Whistleblowers

The path to receiving an SEC whistleblower award is lengthy and complex. In fact, most successful SEC whistleblower claims take 4 years or more to complete. Throughout this process, SEC whistleblower law firms can provide critical guidance to whistleblowers on a wide range of issues. The five areas discussed below represent only a handful of the countless ways in which the best SEC whistleblower law firms can assist whistleblowers before the SEC.

#1: Protect a Whistleblower’s Identity

For most individuals, it is imperative that their identity remain confidential when blowing the whistle. There are several ways that SEC whistleblower law firms can protect a whistleblower’s identity throughout the process. The rules of the SEC Whistleblower Program permit whistleblowers to submit tips anonymously if represented by an attorney. When submitting an anonymous tip, the whistleblower is not required to include his or her name in the submission. Rather, the whistleblower’s attorney will provide their contact information and will be the SEC’s point of contact for the submission.

Moreover, as an added layer of protection, SEC whistleblower law firms can carefully review all information and documents included in the submission and either: (i) identify with particularity any information or documents that could reasonably be expected to reveal the whistleblower’s identity if disclosed to a third-party (to put the SEC on notice of the sensitivity of the information); or (ii) redact/exclude this information from the submission. When redacting/excluding information from a submission to protect a whistleblower’s identity, whistleblower counsel can inform the SEC of potential witnesses that can corroborate the violations and can suggest that the SEC obtain particular evidence to prove the violation.

In short, SEC whistleblower law firms can take additional steps throughout the entire process to maximize the likelihood that a whistleblower’s identity is shielded. In certain circumstances, a whistleblower may remain anonymous, even to the SEC, until an award determination. However, even at the time of an award, a whistleblower’s identity is not disclosed to the public.

And if a whistleblower suffers retaliation, an SEC whistleblower attorney can help the whistleblower assess potential retaliation claims under federal and state law and develop and execute a strategy to enable their client to obtain the maximum recovery. The primary federal laws protecting SEC whistleblowers against retaliation are the anti-retaliation provisions of the Sarbanes-Oxley Act and the Dodd-Frank Act.

#2: Analyze a Whistleblower’s Eligibility for an Award

Most individuals, regardless of citizenship, are – or can become – eligible to receive SEC whistleblower awards. This includes high-level corporate insiders (e.g., officers and directors) and compliance personnel (e.g., internal auditors and external auditors). Importantly, however, the eligibility analysis differs depending on the whistleblower’s relation to the company and how the whistleblower obtained the information.

SEC whistleblower law firms can help whistleblowers determine whether they need to take any actions prior to submitting a tip to be eligible for an award. For example, one of the exceptions in the SEC Whistleblower Program’s rules, found in Section 21F-4 of the Securities Exchange Act, allows certain gatekeepers to be eligible for awards if they report their concerns internally to their supervisor (among others detailed in the rule), wait 120 days, and then submit their information to the SEC. If a whistleblower is uncertain about their eligibility to receive an award, they should consult with an experienced SEC whistleblower law firm. A thorough analysis informed by prior SEC whistleblower award determinations may be the difference between a multi-million dollar whistleblower award and no award at all.

#3: Increase the Likelihood That the SEC Acts on a Whistleblower’s Tip

Since August 2011, the SEC Office of the Whistleblower has received more than 33,300 whistleblower tips. The SEC has limited resources and can only investigate and pursue enforcement actions for a fraction of the tips received. According to the SEC Whistleblower Office’s 2019 Annual Report, the SEC is tracking approximately 1,000 matters in which a whistleblower’s tip has opened an inquiry or investigation. As revealed by the numbers (33,300 tips and 1,000 matters), most whistleblower tips fall to the wayside, and the SEC never takes action on them. There are several ways that SEC whistleblower law firms can help whistleblowers increase the likelihood that the SEC will act on their tips.

First, SEC whistleblower law firms can investigate a fraud scheme, identify the key violations, and prepare a persuasive Form TCR submission that will be more likely to cause the SEC to open an investigation or expand an existing investigation. These submissions are reviewed by the SEC’s Office of Market Intelligence staff who determine whether a Form TCR warrants further investigation. An experienced SEC whistleblower law firm can provide the SEC with a clear roadmap for a successful enforcement action, which will often entail applying SEC precedent established in prior enforcement actions.

Next, SEC whistleblower law firms can identify the evidence that should be included in (or excluded from) submissions. Many whistleblowers are surprised to learn that they should not include all evidence of wrongdoing in a submission. Indeed, some evidence may hinder or delay the progress of an investigation. Moreover, SEC whistleblower law firms can address the countless evidentiary issues that may arise during a whistleblower claim, including, but not limited to:

  • Can I provide information/evidence to the SEC if I signed a confidentiality agreement with my employer?

  • Can I disclose secret recordings to the SEC?

  • How much information/evidence is necessary to get the SEC to act?

  • What are the risks associated with disclosing information to parties outside of the SEC, e.g., to the media or other regulatory agencies?

Finally, as a practical matter, the SEC is more likely to act on a whistleblower’s information if they receive a compelling submission from a law firm that has a track record of successfully representing SEC whistleblowers. As noted previously, the SEC receives thousands of tips annually and can only act on a fraction of the tips received. By signing a TCR submission, an SEC whistleblower attorney is signaling to the SEC that they have vetted the whistleblower’s information and concluded that it is sufficiently specific and credible to merit an investigation, and the investigation could result in a successful enforcement action resulting in monetary sanctions in excess of $1 million. Although there are unfortunately some firms that will file any whistleblower claim, experienced and effective SEC whistleblower lawyers are selective about the claims they bring and develop a reputation at the SEC for bringing meritorious claims.

#4: Increase Total Monetary Sanctions Through “Related Actions”

When the SEC brings a successful enforcement action in excess of $1 million, whistleblowers may also be eligible for “related action” awards. This occurs when a whistleblower reports wrongdoing to the SEC as well as certain other agencies/organizations (detailed in Section 21-F3 of the Securities Exchange Act), and the information leads to two successful enforcement actions. In these circumstances, the whistleblower may be eligible for an award based on the total monetary sanctions collected in both enforcement actions.

For example, on December 6, 2019, Ericsson agreed to pay $539 million to settle the SEC’s charges of violating the U.S. Foreign Corrupt Practices Act (FCPA), as well as a $520 million penalty to the Department of Justice (DOJ), totaling more than $1 billion in monetary sanctions. If these two actions were based on original information voluntarily provided to the SEC and DOJ by an eligible whistleblower, the SEC could pay an award to that whistleblower of between 10 and 30 percent of the $1 billion.

SEC whistleblower law firms can assist whistleblowers by identifying these related actions and determining how best to report the information. Importantly, other agencies do not offer the same protections as the SEC Whistleblower Program. As such, it is imperative that whistleblowers understand how to report to specific agencies as well as the protections offered by each agency.

#5: Maximize a Whistleblower’s Award Percentage

When determining the amount of an award, the SEC considers various factors that may increase or decrease an award percentage of between 10 and 30 percent of the total monetary sanctions collected. For example, the SEC may increase a whistleblower’s award based on positive factors, such as the significance of the information provided and whether the whistleblower and their counsel provided ongoing, extensive, and timely assistance to the SEC in its investigation. The SEC may also decrease a whistleblower’s award based on negative factors, such as unreasonable delay in reporting the wrongdoing to the SEC and culpability in the misconduct.

Prior to submitting a tip, SEC whistleblower law firms can help whistleblowers leverage these rules to maximize their recovery. An effective analysis and application of the award factors could potentially increase an award by millions of dollars. And during the course of an SEC investigation or SEC enforcement proceeding, an experienced SEC whistleblower law firm can identify opportunities to provide effective assistance to the SEC. In addition, experienced SEC whistleblower attorneys can help prepare a detailed application for an award that makes a compelling case for a high award percentage and can help the whistleblower navigate the award application process.

Blowing the whistle through the Dodd-Frank Act’s SEC Whistleblower Program is inherently a long process filled with some uncertainty. But with experienced counsel, a whistleblower can increase their chance of success, mitigate the risk of being “outed,” get sound advice about their options and the process, and combat any potential retaliation.

© 2020 Zuckerman LawNational Law Review, Volume X, Number 150

TRENDING LEGAL ANALYSIS


About this Author

Jason Zuckerman, Whistleblower Litigation Attorney, Washington DC  Law Firm
Principal

Described by the National Law Journal as a “leading whistleblower attorney,” Jason Zuckerman litigates whistleblowe r retaliation, whistleblower rewards, wrongful discharge, and other employment-related claims. His practice focuses on representing senior executives and senior professionals in high-...

(202) 262-8959
Matthew Stock, CPA, Auditor, Zuckerman Law Firm
Certified Public Accountant

Matthew Stock is the Director of the Whistleblower Rewards Practice at Zuckerman Law. He is an attorney, Certified Public Accountant, Certified Fraud Examiner and former KPMG external auditor. Mr. Stock has audited a broad range of industries, both domestically and internationally, including large public companies and financial institutions. As an auditor, Mr. Stock developed an expertise in financial statement analysis and fraud recognition.

At Zuckerman Law, Mr. Stock leverages his experience as an attorney, CPA, CFE and external auditor to assist whistleblowers investigate and disclose complex financial frauds to the government. His practice focuses on representing whistleblowers in rewards cases at the SECCFTCDOJ and IRS. In addition, Mr. Stock assists whistleblowers in Sarbanes-Oxley whistleblower retaliation cases, analyzing a wide range of accounting issues, including financial statement fraudinadequate internal controls, and issuer disclosure violations.

202-930-5901