SEC Financial Fraud Cases
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On July 21, 2010, President Obama signed into law H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act. The bill, in part, is meant to encourage whistleblowers to step forward in response to fraud within the U.S. Financial Sector. For example, section 922 of the Act amends the Securities Exchange Act of 1934 to create significant incentives, assurances of confidentiality, and employment protections for those who provide information about violations to the Securities and Exchange Commission (SEC).
The SEC is now authorized to pay an award to any whistleblower who supplies relevant information to the agency which results in any monetary sanction exceeding $1,000,000. The Act requires the Agency maintain the whistleblower’s confidentiality while the investigation is underway. Any award would be paid out of a newly created Investor Protection Fund, made up of monetary penalties collected by the SEC. The fund could not exceed $300 million dollars, and would also be used to fund the office of the SEC inspector general. The award ranges between 10 and 30 percent of the amount received. While the exact percentage is left to the discretion of the agency, the law does provide several factors for the SEC to take into consideration, such as the importance of the information provided by the whistleblower, the assistance provided by the whistleblower and his or her attorneys, and the degree to which the award may prevent future fraud. Additionally, the whistleblower must provide information previously unknown in the public domain unless the whistleblower was the original source of the information. Lastly, the whistleblower must not be convicted of any criminal violations related to the exposed fraud, nor have learned of the information through his or her governmental duties, nor through an audit required under current securities regulations. The SEC will not provide an award to a whistleblower who intentionally provides false information.
While the new law does not permit the whistleblower to initiate a case on behalf of the SEC due to the fraudulent conduct of another, the whistleblower may bring a case against his or her employer if it retaliates against the whistleblower for communicating with the SEC or participating in an investigation or proceeding. This includes job termination, demotion, direct or indirect threats, or any discrimination in the employer’s terms or condition. If found guilty of retaliation, the employer would be required to return the whistleblower to his or her prior position, provide twice the amount of any unpaid wages plus interest, and cover the whistleblower’s court, expert, and attorney fees. In such cases, the whistleblower is not bound by any employment or arbitration agreements if they conflict with this Act. The whistleblower must bring any claim for retaliation within six years of the retaliatory act itself or three years after he or she should have known of it. Unlike similar provisions in the Sarbanes-Oxley Act, the whistleblower is not required to proceed through all his or her administrative remedies before filing a retaliation claim under section 922 in federal court.
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This website is designed to provide general information only. This information is not and should not be construed to be legal advice. The transmission of the information found on this website also does not result in the formation of a lawyer-client relationship.
You should be aware that qui tam claims are subject to a Statute of Limitations. The area of limitations periods is complex. There are also first to file rules, public disclosure bars, original source issues, and varying limitations in pursuing retaliation claims. If you wish to pursue your claims, you should promptly seek the opinion of an attorney regarding the merits of your qui tam claim and the applicable statute of limitations.