GENERAL INFORMATION FOR POTENTIAL WHISTLEBLOWERS
In general, whistleblowers are people who provide information about frauds, crimes, or other prohibited acts. Often whistleblowers provides this information to the government. SEC whistleblowers are people who tell the U.S. Securities and Exchange Commission (“SEC”) about frauds at the companies where they work or at some other public company, or about frauds committed by a person or company who bought or sold stocks or other securities.
Generally speaking, Congress intended to encourage people to come forward on their own and give the SEC original information about frauds that they have discovered. If the information that an SEC whistleblower provides helps the SEC to bring a successful action against a company and/or against one or more individuals, and if the SEC collects more than $1 million as a result of that action, then the SEC whistleblower is entitled to receive a monetary award from the SEC. The SEC’s Rules contain many requirements that must be met for someone to be able to claim SEC whistleblower status and to claim an award. The Rules also contain some factors that may disqualify some people from being considered as SEC whistleblowers or from receiving awards from the SEC. If the requirements contained in the Dodd-Frank Act and in the SEC’s Rules are satisfied, the SEC must give the SEC whistleblower(s) an award of at least 10% and up to a maximum of 30% of the total amount collected by the SEC.
Jason R. Pickholz was one of the first lawyers ever to win an SEC whistleblower award for a client. He was also the first lawyer to successfully convince the Securities and Exchange Commission to grant his client an SEC whistleblower award over an initial recommendation by its staff to deny any award. This was the first time in the history of the SEC Whistleblower Award Program that the Commission overruled an adverse Preliminary Determination by its Claims Review Staff. (See official SEC Award here.) Inside Counsel Magazine named this as one of the “Five milestones in the Dodd-Frank whistleblower reward program“. For related articles click here (NY Times) and here (Boston Business Journal). In addition, Mr. Pickholz is a Fellow of the New York Bar Foundation, an elected honor that is limited to 1% of the New York State Bar Association membership. You can find out more by clicking on the About Mr. Pickholz and the SEC Whistleblowers links on the right side of this page.
The SEC’s Whistleblower Reward Program was created on July 21, 2010, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). As a result of the Dodd-Frank Act, the Securities Exchange Act of 1934 was amended so that it now includes the SEC’s new whistleblower provisions. In order to put the whistleblower provisions into effect, the SEC also passed its own formal Rules. Those Rules became effective on August 12, 2011. The Dodd-Frank Act, the Securities Exchange Act, and the SEC Rules are very detailed and may be difficult to understand completely. However, if you would like to do some of your own background research first, you can find the laws and rules that make up the SEC’s whistleblower program by looking up the following:
If you want to read the Dodd-Frank Act, its official citation is: Pub. L. No. 111-203, § 922(a), 124 Stat 1841 (2010).
If you want to read the SEC whistleblower provisions in the Securities and Exchange Act of 1934, you can find them in Section 21F of that Act. Section 21F has the title “Securities Whistleblower Incentives and Protection”. You may also be able to find them by using the official citation, which is 15 U.S.C. § 78u-6.
The SEC whistleblower Rules can be found at 17 CFR Part 240, §240.21F-1 through § 240.21F-17.
Some people may think that the SEC only has the power to investigate a problem if it involves stocks or other securities, like stocks that are sold on the New York Stock Exchange, NASDAQ, or some other stock exchange. While the SEC does handle such things, it has the power to deal with a much broader range of frauds. You may have heard the term “public company”. What this generally means is that the company has shares of stock that people buy and sell on a stock exchange. You may own shares of “public” companies if you have an IRA account, or if you participate in an employee stock ownership plan, for example. There are many things that a “reasonable” person would want to know about in deciding whether to buy or sell a company’s stock. There are also many things that might affect a public company’s stock price. If a public company, or people who work for a public company, hide this information or make false or misleading statements about their company, that could be considered a “securities fraud”. The SEC has the power to investigate and bring lawsuits involving these kinds of false or misleading statements.It may not be obvious to you whether something is considered a securities fraud or not. For example, if a company has big losses one year and files false financial statements that hide those losses, you may think of that as an “accounting fraud”. But if the company happens to be a “public company”, reasonable investors would probably want to know that the company had big losses for the year. That information might affect whether those people would want to buy or sell the company’s stock, and at what price. By filing false financial statements, the company may be hiding those losses from its investors, or may even be lying to its investors, so that they will not know that the company is doing badly. This is not just an accounting fraud. It is also a securities fraud. The SEC can and does investigate and bring lawsuits against public companies that engage in accounting frauds like this. Some other types of frauds that the SEC investigates include:
- Ponzi schemes and Pyramid schemes
- High-Yield Investment scams (like “prime bank programs”)
- Theft or misappropriation of customer funds or customer securities
- Manipulation of a security’s price or volume
- Insider trading
- Bribery of or improper payments to foreign officials (for example, where a public company pays government officials in another country to gain an advantage in doing business in that country, also known as FCPA violations)
- Fraudulent or unregistered securities offerings
- Improper conduct involving Municipal securities (for example, when you buy a bond from the government to support a public project like building schools or highways)
- Fraudulent conduct involving Public Pension plans
- Books and Records frauds
These are just some examples of the many types of things that the SEC investigates. If you think you may have discovered a fraud but are unsure about whether it is something that the SEC would be interested in hearing about, you may want to consult with an SEC whistleblower lawyer who can discuss it with you.
The above information is not and should not be construed as providing legal advice. It is not and should never be considered as a substitute for consulting with your own lawyer. The use of this web site or this page does not constitute or create any attorney-client, fiduciary, or confidential relationship between The Pickholz Law Offices LLC and anyone using this web site, or anyone else. The information contained on this website is for informational purposes only. The content of this web site may not reflect current developments. Prior results do not guarantee a similar outcome. Results of prior cases or matters contained on this web site are not indicative of future results or outcomes, and should not be taken as a prediction, promise, or guarantee of any future result or outcome. No one who accesses this web site should act or refrain from acting based on anything contained on this web site. For additional terms and conditions governing the use of this web site, please click on the “disclaimer” link at the bottom of this page or click here.
SEC Whistleblowers | SEC Whistleblower