Robert A. Marsico
Partner
201-896-7165 rmarsico@sh-law.comFirm Insights
Even Company Officers Can Blow the Whistle on Securities Fraud
Author: Robert A. Marsico
Date: March 26, 2015
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Highlighting that anyone can become a whistleblower on securities fraud under the right circumstances, the Securities and Exchange Commission (SEC) recently announced that it plans to award between $475,000 and $575,000 to a former company officer.
As previously discussed on the Scarinci Hollenbeck Business News Blog, the SEC’s whistleblower program provides financial incentives to individuals who report original, high-quality information about a securities fraud that results in an enforcement action with sanctions exceeding $1 million. Whistleblowers may be awarded from 10 percent to 30 percent of the money collected in a case. The SEC has awarded nearly $50 million to 15 whistleblowers since the program launched three years ago.
In most cases, whistleblowers must report information that they learn about firsthand. Accordingly, officers, directors, trustees, or partners who learn about a fraud through another employee reporting the misconduct generally are not eligible for an award. However, there are a few exceptions. For instance, corporate officers can qualify as whistleblowers in cases where investors will be substantially harmed if a potential securities violation is not reported or there is a reasonable belief that the company is engaging in conduct that would impede an investigation.
In this case, the whistleblower was entitled to the award because he or she reported the information to the SEC more than 120 days after other responsible compliance personnel possessed the information and failed to adequately address the issue. This is the SEC’s first award under the exception.
According to Sean McKessy, Chief of the SEC’s Office of the Whistleblower, “Receiving information and cooperation from company insiders is particularly useful in the early detection of securities fraud, and we will continue to leverage whistleblower information to help combat securities law violations and better protect investors and the marketplace.” He further stressed that “companies must have rigorous internal compliance programs that adequately address and remedy potential violations voiced by their employees as well as by their officers, directors, or other individuals.”
As this SEC announcement reinforces, companies must have robust internal reporting systems in place to address complaints of misconduct. Even corporate officers can become whistleblowers if they do not feel that the company is adequately addressing their concerns.
- Practices: Corporate Transactions & Business, Financial Services & Regulatory Practice
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