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Dodd-Frank Whistleblower Program Nets Tipster $30 Million Award

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October 6, 2014

A foreign tipster will collect a whistleblower award of more than $30 million as a result of his or her decision to report violations to the SEC. The award is part of an increasing effort to boost the amount whistleblower’s receive for bringing information to authorities. The award is more than double the highest previous award. The SEC whistle blowing program, related to Dodd-Frank legislation, has been in place since 2011, but it wasn’t until recently that awards were significant enough to garner such media attention.

The whistleblower in this case will remain anonymous, but had approached the SEC with information about an ongoing fraud. Had the tipster brought the activity to the SEC’s attention sooner, the award might have been even larger. It is not publicly known how long the tipster waited to report. It is important to note that the tipster is not a US resident. While this proves that non-residents stand to gain a great deal from sharing illegal activity with the government, their efforts are not with without risk.

Concern for Foreign Tipsters

Another recent case was appealed to the Second Circuit Court of Appeals where the original ruling was upheld that Dodd-Frank’s anti-retaliation protections do not cover a former Siemens China staffer. The court ruled the case had nothing to do with the United States and cited a 2010 US Supreme Court decision that states protection does not apply outside of the United States unless there is evidence Congress specifies that it does. Furthermore, an internal investigation by Siemens showed the employee’s accusations were meritless and he was not fired for reporting any information.

The SEC believes that ruling will have no bearing on the current $30 million award. However, there is concern that foreign tipsters will not always receive the same protection as US based tipsters if their employers retaliate against their whistle blowing.

According to SEC data, four of the more than a dozen tipsters that have participated in the program have lived abroad. Tips have come in from people in 55 foreign countries, including Canada, China, and the United Kingdom, and account for 12% of the tips since the program began.

Officials Hope the Awards Encourage Reports of Violations

Officials from the SEC hope the awards will prompt informants to step forward from all over the world with tips on actions that violate US securities laws. Awards are determined based on a measurement of the penalties collected when whistleblower information leads to an SEC enforcement action. If an entity is sanctioned for more than $1 million, the whistleblower stands to receive 10% to 30% of the amount.

The program also strives to keep all information about tipsters, other than the amounts of the awards, anonymous. The attorney representing the most recent tipster, Erika Kelton, declined to give any additional information about her client. Kelton’s law firm did release a statement thanking the Justice Department’s Fraud Section, as well as the FBI.

The previous highest award for a tipster was $14 million and given last year for a tip about a Chicago-based scheme to defraud non-US investors seeking residency.

The program is designed to protect investors from being cheated. Those who support the program are concerned about companies misleading investors and it resulting in the loss of millions of dollars in investments. Some believe deceptive practices have become the norm in the business and their hope is the hefty whistleblower awards will make it so unscrupulous individuals and businesses will be fearful of their unlawful actions being reported because the incentive to do so is so high. Most believe award amounts will continue to increase, as long as the program seems to be having an effect.

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