Is The SEC Serious About Whistleblowers?

Recently, the U.S. Securities and Exchange Commission (the SEC) released its first annual report on its Dodd-Frank Whistleblower Program.  Reaction to the report has been mixed.  Some point to the 3,001 tips the agency has received during its first year and see a sign of positive progress.  To others, a program that has made only a single whistleblower payout of $50,000 is laughable compared to the trillions of dollars being handled by Wall Street.

Since this is the first year of the SEC whistleblower program, it is impossible to predict the long-term trend of the program.  We can, however, compare the SEC program to the IRS Tax Fraud Whistleblower Program to get a sense of whether the SEC is moving forward with purpose.  The SEC whistleblower program is very similar to the IRS whistleblower program, in that, unlike a Qui Tam case, you cannot litigate an SEC whistleblower case on your own in the absence of the Federal government.  If the SEC investigates your claim and decides that it is not worth pursuing, then that’s the end of the matter.

For the IRS, there have been justifiable concerns about whether the IRS is serious about pursuing whistleblower cases.  The IRS whistleblower office opened for business in 2006, but it took until 2011 for the IRS to make its first whistleblower payout.  (This was a Young Law Group case that resulted in $4.5 million being paid to our client.)  The IRS has paid out only a handful of rewards to date, which is very discouraging.

Here we are, only one year into the SEC whistleblower program, and the SEC has already made its first whistleblower payout.  If we use the payout history of the IRS program as our guide, the SEC is moving forward with its whistleblower program with an astonishing sense of urgency.

In our experience with the IRS, cases can languish.  You can file a whistleblower case and hear nothing at all from the IRS for years about your filing.

We have several cases on file with the SEC under its whistleblower program, and the SEC appears to be enthusiastic about the receipt of whistleblower claims and expedient in its response.  Actions speak louder than words, and thus far the actions of the SEC demonstrate they are being responsive in doing their intake, reviewing the information, and asking to interview clients.  Of course, not everyone reports a similarly quick response from the SEC to their claims, but our experience in filing Qui Tam and IRS tax evasion cases suggests that how you file makes a big difference in the success of a case.

These are complex cases and they take time to investigate and resolve.  If you use the False Claims Act as your benchmark, even though it’s a completely different process, it usually takes a year or two for the government to thoroughly investigate a whistleblower’s allegations before making a decision about how to proceed with a particular matter.  The SEC whistleblower program has been in place for less than a year and a half.  Over the next year or two, we will have a much better sense for how many cases the SEC’s whistleblower office is going to resolve.

Our own experiences with the SEC indicate that it is truly serious about whistleblowers, that it is moving forward on investigating complaints, and that we will see many more cases being resolved and much larger awards in the near future. If you encounter securities fraud (which can include misconduct such as the issuance of false or misleading statements in financial reports of public companies, outright theft, insider training, ponzi schemes and front running misconduct), please contact us for a free consultation on whether you should file a whistleblower complaint.