Securities Fraud
The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act creates a new program designed to incentivize whistleblowers to disclose fraud in connection with financial securities to the U.S. Securities Exchange Commission (SEC), and to protect those whistleblowers from retaliation by their employers. Under the program, whistleblowers may provide information relating to a violation of the securities laws to the SEC. If that information leads to a successful judicial or administrative action by the Government, then the SEC will award the whistleblower between 10-30% of the total amount of monetary sanctions collected. The exact amount of the award within this range will be determined by the SEC in its sole discretion; however, it is required to take into consideration factors such as the significance of the information to the success of the Government’s case and the degree of assistance provided by the whistleblower. Whistleblowers are only entitled to an award if the judicial or administrative action results in monetary sanctions that exceed $1,000,000.
Types of Securities Fraud
The nature and form of securities fraud can vary widely, but may include:
- Market manipulation
- Misstatements or omissions of fact in disclosures to the SEC
- Corporate mismanagement resulting in breach of fiduciary duties to shareholders
- Fraudulent accounting practices that misrepresent corporate assets or liabilities
- Insider trading
- Backdating stock options
- Ponzi schemes
- Aiding & abetting Securities Fraud
Commodities Fraud
The Dodd-Frank Act also establishes a new program to encourage whistleblowers to report fraud in connection with the sale of commodities. Under this program, whistleblowers may disclose information relating to commodities fraud to the Commodity Futures Trading Commission (CFTC). As is the case with the SEC’s program, if the information leads to a successful judicial or administrative action, then the CFTC will award the whistleblower between 10-30% of the total amount of monetary sanctions obtained by the Government. But like the SEC program, a whistleblower is only entitled to an award under the CFTC’s program if the judicial or administrative action results in monetary sanctions that exceed $1,000,000.
Foreign Corrupt Practices Act
The new SEC whistleblower program also creates an avenue for whistleblowers to report violations of the Foreign Corrupt Practices Act (FCPA). Under the FCPA’s anti-bribery provisions, it is unlawful for a company, or an individual acting on the company’s behalf, to offer, give, promise to give, or to authorize the giving of anything of value to any foreign official in order to obtain or retain business, or to direct business to a certain person. The FCPA also requires companies whose securities are listed in the United States to satisfy certain accounting requirements. Companies must make and keep books and records that accurately and fairly reflect corporate assets and must create and maintain an accurate set of internal accounting controls. The SEC is responsible for civil enforcement of the FCPA.
Protection Against Retaliation
In addition to creating a new forum for whistleblowers to disclose fraud in connection with securities and commodities or violations of the FCPA, the Dodd-Frank Act also includes a number of provisions designed to protect whistleblowers from retaliation by their employers. The Act prohibits employers from taking any adverse employment action, or otherwise discriminating against an employee, for providing information to the SEC or CFTC. Any employee that is subjected to discrimination or retaliation has the right to file a lawsuit against his or her employer and seek reinstatement with the same seniority status, two times the amount of back pay owed to the employee, and compensation for litigation costs, including attorneys’ fees.
In order to further protect whistleblowers from retaliation, the Act allows a whistleblower to anonymously submit information to the SEC or CFTC, as long as the whistleblower is represented by an attorney who submits the information on the whistleblower’s behalf. The SEC, CFTC, and any other government agencies assisting the SEC or CFTC in an investigation must also keep the information provided by the whistleblower confidential until the SEC or CFTC is required to disclose the information in connection with a public proceeding.
Contact Us
Reporting cases of securities and commodities fraud or violations of the FCPA can be complicated, but working with an experienced attorney can make the process much faster, easier and more likely to succeed. For assistance with reporting securities fraud, contact the law firm of Tycko & Zavareei LLP at 202-973-0900 to discuss your legal options.
