Recent Developments: Dodd-Frank Whistleblower Cases
During the 2014 fiscal year, the number of whistleblower tips and complaints received by the Commission grew 10.1 % from the year before to 3,620. According to the Commission, 2013 had seen the number of tips increase 7.9% to 3,238 from 3,001 tips which were received in 2012.
In 2014, California, New York, Florida and Texas lead the country in whistleblower tips filed. In 2013, Californians filed 375 tips to the SEC, while New Yorkers filed 215. Following New York were Florida and Texas with 187 and 135 filings, respectively.
In July 2015, SEC paid $3 million to a whistleblower who helped crack a complex fraud case. The SEC’s whistleblower program has paid more than $50 million to 18 whistleblowers, since its inception in 2011, including a more than $30 million award in 2014 and a more than $14 million award in 2013. The year 2014 saw substantially more money, almost double of what was awarded in 2013 and 2012, the inaugural year of the whistleblower reward program. During 2013, the Securities and Exchange Commission had awarded whistleblowers $14,831,965, due in large part to the October 1, 2013 award of $14 million to a single whistleblower.
In a record-breaking development, SEC announced an award of more than $30 million to a foreign whistleblower in September 2014, making it the largest award to date under the SEC's whistleblower program. In Liu v Siemans AG(4) the Second Circuit court had ruled that Dodd-Frank's anti-retaliation provisions do not apply to conduct abroad and dismissed a suit brought by a former employee of a Siemens subsidiary in China who claimed to have been fired after reporting potential corruption. Although the whistleblower is a foreign resident and none of the termination actions occurred within the United States, SEC stated that the plaintiff provided “key original information” leading to a successful enforcement action by the SEC concerning U.S. Securities violations. Therefore, in such instances the whistleblower protection provision is deemed to have extraterritorial applications although not implicitly set forth in the whistleblower provisions. In 2014, according to the Commission, tips have been received from individuals in 83 countries outside the United States, including the United Kingdom, India, Canada, China and Australia.
In 2013, the $14 million award had stemmed from the uncovering of an alleged fraud operated by Anshoo Sethi and his two companies operating out of Chicago. Sethi reportedly duped approximately 250 Chinese investors out of more than $155 million. Investors were allegedly told that they were funding the development of a hotel and conference center, but failed to disclose that he lacked the necessary building permits and that his representations of having the support of major hotel chains were false. Supposedly investors were led to believe that their contributions would boost their chances at obtaining a green card through a government program designed to offer U.S. residency in exchange for job-creating investments, even though the documentation that was given to the immigration authorities was fake.
In June 2014, the SEC reaffirmed its power to bring retaliatory action employers under the anti-retaliation provision of Dodd-Frank by bringing the first administrative action In the Matter of Paradigm Capital Mgmt, Inc. Allegedly a trader lost his position and authority in a hedge fund for reporting improper transactions and illegal activities. The case was ultimately settled with a $2.2 million settlement with the SEC.
In April 2014, the SEC had announced plans to increase the award paid to the very first whistleblower to collect under the program by $150,000. That individual has been awarded 30% of the amounts recovered, which initially stood at $150,000, yielding a $50,000 payout. However, as additional monies are collected, the whistleblower, who provided information leading to the uncovering of a multi-million dollar fraud, potentially stood to collect significantly more.
Whistleblowers who feel that they did not receive a fair bounty may appeal the SEC’s decision to try and increase their award. All payments to whistleblowers on that matter are then suspended until the appeal is complete. There may be multiple whistleblowers related to one investigation, who jointly share the bounty according to the proportionate share in the quality of the information provided to the SEC.