June 27, 2022

Volume XII, Number 178

Advertisement
Advertisement

June 27, 2022

Subscribe to Latest Legal News and Analysis
Advertisement

Can the SEC Whistleblower Program Pay an Award to a Whistleblower for Reporting a Violation of OFAC Sanctions?

Although violations of OFAC sanctions are enforced primarily by the Office of Foreign Assets Control and the Department of Justice, the SEC can also take enforcement action where the conduct violates the books and records provision of the Exchange Act or violates a registrant’s disclosure duties under the federal securities laws.

For example, in September 2019, Quad/Graphics Inc., a Wisconsin-based digital and print marketing provider, paid nearly $10 million to resolve charges that it paid or promised bribes to Peruvian government officials to win sales contracts and avoid penalties and created false records to conceal transactions with a state-controlled Cuban telecommunications company, which were subject to U.S. sanctions and export controls laws.

Certain Quad employees concealed transactions with Cuba in internal emails and falsified books and records to conceal the transactions, including references to a “broker” that were intended to conceal the efforts to use a third party as a pass-through company.  As a result of this scheme to hide transactions with Cuba, Quad’s contracts, shipping documents, invoices, and journal entries were inaccurate, thereby violating the books and records provisions of Section 13(b)(2)(A) of the Exchange Act.  Those books and records provisions require issuers to make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect their transactions and dispositions of the assets of the issuer.

Concealing sanctions violations could also violate Rule 10b-5 and Regulation S-K, i.e., transactions with a sanctioned country could have a future material impact on an issuer’s business, financial condition, or results of operations, and therefore there is a duty to disclose the risks to shareholders.  A reasonable investor would want to know the risks associated with conducting business with a sanctioned country, including the company’s potential exposure to substantial civil penalties and even criminal prosecution and the impact on the company’s brand and goodwill.

Penalties for sanctions violations can be substantial. In March 2017, Zhongxing Telecommunications Equipment Corporation paid $100,871,266 in a settlement agreement for 251 apparent violations of the Iranian Transactions and Sanctions Regulations.  ZTE had used third-party companies to surreptitiously supply Iran with a substantial volume of U.S.-origin goods, including controlled goods appearing on the Commerce Control List.

In light of the massive exposure to substantial penalties, an issuer concealing sanctions violations is likely violating the federal securities laws, and therefore a whistleblower reporting the violation to the SEC could qualify for an SEC whistleblower award, including a related action award.

SEC Whistleblower Program

The SEC Whistleblower Program offers awards to eligible whistleblowers who provide original information that leads to successful SEC enforcement actions with total monetary sanctions exceeding $1 million.  A whistleblower may receive an award of between 10% and 30% of the total monetary sanctions collected in actions brought by the SEC and in related actions brought by other regulatory or law enforcement authorities.  The SEC Whistleblower Program allows whistleblowers to submit tips anonymously if represented by an attorney in connection with their tip.

Since the inception of the SEC Whistleblower Program, the SEC has paid nearly $1.3 billion in awards to whistleblowers, including to whistleblowers that we have represented.  The largest SEC whistleblower awards to date are $114 million, $110 million, and $50 million. See a summary of the SEC whistleblower cases that have resulted in large awards.

Experienced and effective SEC whistleblower attorneys can provide critical guidance and effective advocacy to whistleblowers to increase the likelihood that they get the maximum award.

© 2022 Zuckerman LawNational Law Review, Volume XII, Number 68
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement

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 whistleblower retaliation, whistleblower rewards, wrongful discharge, and other employment-related claims. His practice focuses on representing senior executives and senior professionals in high-stakes...

(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...

202-930-5901
Advertisement
Advertisement
Advertisement