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Difference between revisions of "SEC Whistleblower Program"
SEC Whistleblower Program (view source)
Revision as of 04:00, 13 February 2025
, 04:00, 13 February 2025→The Conduct-and-Effects Test
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In 2011, the SEC Office of the Whistleblower was created pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to run the SEC Whistleblower Reward Program. The program offers monetary incentives to individuals who report information about violations of the federal securities laws to the SEC. '''[https://www.forbes.com/sites/realspin/2017/07/18/one-billion-reasons-why-the-sec-whistleblower-reward-program-is-effective/?sh=6b06bf9a3009#526977113009 In its short history, the SEC Whistleblower Reward Program has been extraordinarily successful in enabling the SEC root out securities fraud and protect investors.]''' To date, the SEC Office of the Whistleblower has issued more than $500 million in awards to whistleblowers. | In 2011, the SEC Office of the Whistleblower was created pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to run the SEC Whistleblower Reward Program. The program offers monetary incentives to individuals who report information about violations of the federal securities laws to the SEC. '''[https://www.forbes.com/sites/realspin/2017/07/18/one-billion-reasons-why-the-sec-whistleblower-reward-program-is-effective/?sh=6b06bf9a3009#526977113009 In its short history, the SEC Whistleblower Reward Program has been extraordinarily successful in enabling the SEC root out securities fraud and protect investors.]''' To date, the SEC Office of the Whistleblower has issued more than $500 million in awards to whistleblowers. | ||
== SEC Whistleblower Rules == | == '''SEC Whistleblower Rules''' == | ||
Under the rules of the program, the SEC Office of the Whistleblower is required to issue awards to eligible whistleblowers who provide original information that leads to successful enforcement actions with total monetary sanctions in excess of $1 million. In exchange for the specific and credible tips, '''whistleblowers will receive an award of between 10% and 30% of the total monetary sanctions collected.''' The SEC considers positive and negative factors when determining an award percentage. | Under the rules of the program, the SEC Office of the Whistleblower is required to issue awards to eligible whistleblowers who provide original information that leads to successful enforcement actions with total monetary sanctions in excess of $1 million. In exchange for the specific and credible tips, '''whistleblowers will receive an award of between 10% and 30% of the total monetary sanctions collected.''' The SEC considers positive and negative factors when determining an award percentage. | ||
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To date, the SEC Whistleblower Office has issued approximately [https://www.zuckermanlaw.com/sp_faq/largest-sec-whistleblower-awards/ $1 billion in awards to whistleblowers.] The [/https://www.zuckermanlaw.com/sp_faq/largest-sec-whistleblower-awards/ largest SEC whistleblower awards to date] are $50 million, $39 million, and $37 million. For more information about the SEC Whistleblower Program, see the eBook [https://www.zuckermanlaw.com/sec-whistleblower-lawyers/ Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award.] | To date, the SEC Whistleblower Office has issued approximately [https://www.zuckermanlaw.com/sp_faq/largest-sec-whistleblower-awards/ $1 billion in awards to whistleblowers.] The [/https://www.zuckermanlaw.com/sp_faq/largest-sec-whistleblower-awards/ largest SEC whistleblower awards to date] are $50 million, $39 million, and $37 million. For more information about the SEC Whistleblower Program, see the eBook [https://www.zuckermanlaw.com/sec-whistleblower-lawyers/ Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award.] | ||
==Criteria for Determining the Amount of a Whistleblower Award== | =='''Criteria for Determining the Amount of a Whistleblower Award'''== | ||
Many factors affect the amount of a whistleblower award. The SEC may increase the amount of an award based on the following factors: | Many factors affect the amount of a whistleblower award. The SEC may increase the amount of an award based on the following factors: | ||
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##made materially false statements, or provided false documents, to hinder your company’s ability to detect, investigate, or remediate the violation | ##made materially false statements, or provided false documents, to hinder your company’s ability to detect, investigate, or remediate the violation | ||
== Securities Law Violations that Qualify for an SEC Whistleblower Award == | == '''Securities Law Violations that Qualify for an SEC Whistleblower Award''' == | ||
* [https://whistleblower-rewards-and-protections-wiki.zuckermanlaw.com/index.php/Accounting_fraud Accounting fraud] | * [https://whistleblower-rewards-and-protections-wiki.zuckermanlaw.com/index.php/Accounting_fraud Accounting fraud] | ||
* [https://whistleblower-rewards-and-protections-wiki.zuckermanlaw.com/index.php/Investment_fraud Investment fraud] | * [https://whistleblower-rewards-and-protections-wiki.zuckermanlaw.com/index.php/Investment_fraud Investment fraud] | ||
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* [https://whistleblower-rewards-and-protections-wiki.zuckermanlaw.com/index.php/Misleading_or_Incomplete_Cybersecurity_Disclosures Misleading or Incomplete Cybersecurity Disclosures] | * [https://whistleblower-rewards-and-protections-wiki.zuckermanlaw.com/index.php/Misleading_or_Incomplete_Cybersecurity_Disclosures Misleading or Incomplete Cybersecurity Disclosures] | ||
==Awards Paid from a Deferred Prosecution Agreement or Non-Prosecution Agreement== | =='''Awards Paid from a Deferred Prosecution Agreement or Non-Prosecution Agreement'''== | ||
In September 2020, the [https://www.zuckermanlaw.com/sec-adopts-amendments-to-whistleblower-rules-that-will-strengthen-some-aspects-of-the-program-but-also-reduce-large-awards-and-limit-protection-against-retaliation/ SEC revised its whistleblower rules] to add a new paragraph (3) to existing Rule 21F-4(d) to provide that the term “administrative action” includes a deferred prosecution agreement (“DPA”) or a non-prosecution agreement (“NPA”) entered into by DOJ as well as a settlement agreement entered into by the SEC outside of the context of a judicial or administrative proceeding to address violations of the securities laws; and further that any money required to be paid in such actions will be deemed a “monetary sanction” within the meaning of Rule 21F-4(e). | In September 2020, the [https://www.zuckermanlaw.com/sec-adopts-amendments-to-whistleblower-rules-that-will-strengthen-some-aspects-of-the-program-but-also-reduce-large-awards-and-limit-protection-against-retaliation/ SEC revised its whistleblower rules] to add a new paragraph (3) to existing Rule 21F-4(d) to provide that the term “administrative action” includes a deferred prosecution agreement (“DPA”) or a non-prosecution agreement (“NPA”) entered into by DOJ as well as a settlement agreement entered into by the SEC outside of the context of a judicial or administrative proceeding to address violations of the securities laws; and further that any money required to be paid in such actions will be deemed a “monetary sanction” within the meaning of Rule 21F-4(e). | ||
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This is known as the “conduct-and-effects” test. Courts have applied this test for over 40 years notwithstanding the fact that the federal securities acts of 1933 and 1934 did not address the extraterritorial reach of the antifraud provisions of those statutes. On June 24, 2010, the Supreme Court of the United States held in Morrison v. Nat’l Australia Bank Ltd. that the lower courts were wrong to apply the conduct-and-effects test. Then, less than a month after the Morrison decision, Congress enacted the Dodd-Frank Act, which amended the jurisdictional provisions of the federal securities acts to clearly indicate that the anti-fraud provisions apply extraterritorially when the statutory conduct-and-effects test is met. | This is known as the “conduct-and-effects” test. Courts have applied this test for over 40 years notwithstanding the fact that the federal securities acts of 1933 and 1934 did not address the extraterritorial reach of the antifraud provisions of those statutes. On June 24, 2010, the Supreme Court of the United States held in Morrison v. Nat’l Australia Bank Ltd. that the lower courts were wrong to apply the conduct-and-effects test. Then, less than a month after the Morrison decision, Congress enacted the Dodd-Frank Act, which amended the jurisdictional provisions of the federal securities acts to clearly indicate that the anti-fraud provisions apply extraterritorially when the statutory conduct-and-effects test is met. | ||
=='''The Conduct-and-Effects Test'''== | |||
Through the [https://whistleblower-rewards-and-protections-wiki.zuckermanlaw.com/index.php/Whistleblower_Protection_Laws#Dodd-Frank_Act Dodd-Frank Act], Congress amended the federal securities laws to include the conduct-and-effects test: | |||
The district courts of the United States and the United States courts of any Territory shall have jurisdiction of an action or proceeding brought or instituted by the Commission or the United States alleging a violation of section 77q(a) of this title [Section 17(a) of the 1933 Securities Act] involving: | |||
#conduct within the United States that constitutes significant steps in furtherance of the violation, even if the securities transaction occurs outside the United States and involves only foreign investors; or | |||
#conduct occurring outside the United States that has a foreseeable substantial effect within the United States. See [https://www.law.cornell.edu/uscode/text/15/77v 15 U.S.C. § 77v(c)] | |||
=='''SEC Enforcement Action Against International Ponzi Scheme'''== | |||
On January 24, 2019, in [https://www.sec.gov/litigation/litreleases/2016/lr23604.htm SEC v. Scoville], the United States Court of Appeals for the Tenth Circuit held (see opinion below) that Congress, in enacting the Dodd-Frank Act’s amendments to the jurisdictional provisions of the securities laws, “undoubtedly intended that the substantive antifraud provisions should apply extraterritorially when the statutory conduct-and-effects test is satisfied.” The Tenth Circuit proceeded to apply the test to a [https://www.sec.gov/litigation/complaints/2016/comp23604.pdf $207 million international Ponzi scheme], which had 90% of its customers outside the United States. The Ponzi scheme involved the sales of investment contracts by Traffic Monsoon, LLC, whose sole owner and member is Charles Scoville. The Tenth Circuit found that the Defendant’s actions satisfied the conduct-and-effects test because: | |||
#The Defendant’s company was located in the United States. | |||
#Through his company, the Defendant created and promoted the investments over the internet while residing in the United States. | |||
#The servers housing the company’s website were physically located in the United States. | |||
The Tenth Circuit is the first Circuit Court to address the scope of the SEC’s extraterritorial enforcement authority under the Dodd-Frank Act. The opinion highlights the SEC’s expansive international reach against fraudsters. For additional analysis of the Tenth Circuit’s opinion, see a recent article in the Harvard Law School Forum on Corporate Governance and Financial Regulation, [https://corpgov.law.harvard.edu/2019/06/09/a-new-era-of-extraterritorial-sec-enforcement-actions/ A New Era of Extraterritorial SEC Enforcement Actions.] In November 2019, the U.S. Supreme Court [https://news.bloomberglaw.com/securities-law/high-court-denies-review-in-sec-fraud-extraterritoriality-case declined to review the case.] | |||