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SEC Annual Report to Congress on the Dodd-Frank Whistleblower Program Reveals Increases in Tips and Awards

seclogo.bmpThe U.S. Securities and Exchange Commission recently issued its 2014 Annual Report to Congress on the Dodd-Frank Whistleblower Program. (Available at: http://www.sec.gov/about/offices/owb/annual-report-2014.pdf). According to the report, the Commission authorized an award of more than $30 million to a whistleblower, its largest to date. The Commission paid awards to nine whistleblowers in 2014, and since its inception, in 2011, it has authorized awards to a total of fourteen whistleblowers.

The SEC opened a separate office (the Office of the Whistleblower) within the Division of Enforcement to administer the Dodd-Frank Whistleblower Program. Its mission is to identify and fight fraud early and quickly to minimize losses to investors. The program requires OWB to report annually to Congress on its activities, and to specifically address how much money has been paid to whistleblowers during the preceding year. To increase awareness and the transparency of its program, OWB created a website where all Final Orders issued by the Commission either awarding or denying a claim for an award are posted. (http://www.sec.gov/about/offices/owb/owb-final-orders.shtml).

The 2014 annual report highlights the increase in tips over the last few years. The SEC received nearly 400 more tips in 2014 (3,620) than in 2013 (3,238), and it returned over 2,731 phone calls. The Commission received tips from individuals in every state, and California, Florida, New York, and Texas were the top states from which the highest number of whistleblower tips originated in 2014. The most common complaint categories included Corporate Disclosures and Financials (16.9%), Offering Fraud (16%), and Manipulation (15.5%).

On June 16, 2014, the SEC exercised its anti-retaliation authority for the first time and charged a hedge fund advisory firm, Paradigm Capital Management, Inc., with retaliating against an employee for reporting prohibited principal transactions to the Commission. Paradigm and the firm’s owner, Candace King Weir, agreed to pay $2.2 million to settle the Commission’s charges, which included the firm’s violation of the anti-retaliation section under the Dodd-Frank Act.

According to the report, on September 22, 2014, the Commission authorized a $30 million award to a whistleblower living in a foreign country. The information provided by the whistleblower led to a successful enforcement action by the SEC. Even though the Commission determined that the claimant unreasonably delayed reporting the violations to the SEC, and therefore downwardly adjusted its recommended award, this award was more than double the amount of the previous highest award made under the whistleblower program.

The 2014 whistleblower award recipients each provided specific information that led to an enforcement action. According to the annual report, the information was current or timely, it identified particular individuals involved in the fraud, or pointed to specific documents that substantiated their allegations or explained where such documents could be located, or identified specific financial transactions that evidenced the fraud. There is no requirement that a whistleblower be a current or former employee to be eligible for an award, but the report highlighted that several individuals who received awards were company insiders. Other recipients of awards obtained their information because they were investors or professionals working in a similar industry.

If you have inside knowledge of securities law violations and would like to discuss blowing the whistle under any of the SEC whistleblower programs, please contact the Stone & Magnanini LLP whistleblower hotline for a confidential discussion about the facts: https://www.false-claims.net/contact-us.html