Jun 19

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SEC Whistleblowers Rewarded

The Securities and Exchange Commission(“SEC”)  announced the agency has approved its second Dodd-Frank whistleblower award since the program’s 2011 inception, this time to three individuals who were each deemed to have provided information related to a $7.5 million enforcement action that was (i) voluntary, (ii) original, and (iii) led to the successful result.

The SEC’s “fact sheet” for its implementation rules nicely summarizes these requirements for obtaining a whistleblower bounty, as follows:

  • “In general, a whistleblower is deemed to have provided information voluntarily if the whistleblower has provided information before the government, a self-regulatory organization or the Public Company Accounting Oversight Board asks for it.”
  • “Original information must be based upon the whistleblower’s independent knowledge or independent analysis, not already known to the Commission and not derived exclusively from certain public sources.”
  • “A whistleblower’s information can be deemed to have led to successful enforcement in two circumstances: (1) if the information results in a new examination or investigation being opened and significantly contributes to the success of a resulting enforcement action, or (2) if the conduct was already under investigation when the information was submitted, but the information is essential to the success of the action and would not have otherwise been obtained. …”

The three claimaints are each entitled to collect 5% of the enforcement result obtained against a sham hedge fund and its CEO (the key word being obtained, as awards must follow successful collection by the SEC).  The SEC has suggested that there are more potential awards in the pipeline.  This message should serve as a warning to corporations to make every effort to address concerns internally.  A New York Times article previously reported that 80% of whistleblowers had previously tried to report the improprieties internally.

About the author

Renee Howdeshell

Renee Howdeshell is a founding member of Fulcrum Inquiry, an accounting, finance and economic consulting firm that performs damage analyses for commercial litigation, forensic accountings, royalty & distribution audits, financial investigations, and business valuations. Ms. Howdeshell holds a degree in Finance and Marketing from the University of Virginia's McIntire School of Commerce and is a Certified Public Accountant (CPA) and a Certified Fraud Examiner (CFE). She has testified as an expert witness in federal court, CA state court and arbitration regarding the results of her work. She can be reached at (213) 787-4112 and her resume is available at www.fulcrum.com.

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