Dodd-Frank Act that was passed on July 21, 2010, the Securities & Exchange Commission
(SEC) created a program to encourage whistleblowers to come forward with
information about publicly-traded companies that are violating SEC rules.
At the time the Act was passed, the SEC was reeling from criticism levied
at it in the wake of Enron and other corporate debacles that hurt both
investors and our economy. The SEC had received tips about some of the
very practices that were causing such serious impact, but it had not acted
on the tips. Under the Dodd-Frank Act, Congress strengthened the SEC’s
ability and duty to reward whistleblowers who came forward.
The SEC set out rules and opened
SEC Office of the Whistleblower under the headship of Director Sean McKessy. I recently heard Mr. McKessy
speak at a conference put on by Taxpayers Against Fraud.
To date, the SEC has not given many awards, but McKessy said that the lack
was a matter of time, not intent. He believed that the “sweet spot”
will come 2-3 years after the SEC’s whistleblower rules took effect,
as the investigations that began early on finish up and the public can
finally see the results of the program. He said he thought the next 18
months would be “interesting times.”
A whistleblower who reports a company that violates the SEC’s rules
can receive 10-30% of the fine that the SEC levies. The SEC determines
what the amount will be, and that determination is not appealable.
Mr. McKessy asked lawyers representing
SEC whistleblowers (like me) to try to file only the highest-quality suits. He asked that
the attorneys, to the extent possible, separate the wheat from the chaff.
He mentioned that it was very helpful when an attorney helped the SEC
assess the story of the client. Lawyers and whistleblowers may be able
to help during the investigation process with things like screening large
data dumps. Mostly, though, the attorney needs to remind the client that
the process with the SEC will not be transparent, and will take time.
During the investigation, the client cannot call the SEC directly.
The SEC is serious about retaliation against whistleblowers trying to report
wrongdoing. While some companies have argued that they can retaliate against
someone who reports wrongdoing internally, Mr. McKessy points out that
The SEC does have the authority to tell whistleblowers and their attorneys
that the SEC has assigned the case to someone in enforcement, has decided
not to pursue the action, etc. While the SEC has typically investigated
these matters on its own, McKessy said that he was open to working collaboratively
if the law firm representing the whistleblower was “good and credible.”
Mr. McKessy spoke on a panel alongside Stephen Whitlock, the Director of
the IRS Whistleblower Office, and Vincent Martinez, Director of the Commodity
Futures Trading Commission (CFTC) Whistleblower Office. The TAF conference
was held in September 2012 in Washington, D.C. The conference addressed
the False Claims Act (FCA), also known as Lincoln’s Law, since it
is the most-used whistleblower statute, but as the presence of McKessy,
Whitlock and Martinez attests, it is not the only whistleblower statute