U.S. securities regulators are expecting to pay out a record award of more than US$30 million to a foreign whistleblower that tipped them off to a fraud that they then shut down.
The U.S. Securities and Exchange Commission (SEC) said Monday it expects to pay more than US$30 million to a whistleblower based outside the U.S., “who provided key original information that led to a successful SEC enforcement action”. The SEC says that the award will be the largest made so far under its’ new whistleblower program. The previous high for a whistleblower award was US$14 million.
The record payout will also be the fourth award paid to a whistleblower living in a foreign country. “This award of more than US$30 million shows the international breadth of our whistleblower program as we effectively utilize valuable tips from anyone, anywhere to bring wrongdoers to justice. Whistleblowers from all over the world should feel similarly incentivized to come forward with credible information about potential violations of the U.S. securities laws,” said Sean McKessy, chief of the SEC’s Office of the Whistleblower.
“This whistleblower came to us with information about an ongoing fraud that would have been very difficult to detect,” said Andrew Ceresney, director of the SEC’s division of enforcement. “This record-breaking award sends a strong message about our commitment to whistleblowers and the value they bring to law enforcement.”
The SEC’s whistleblower program pays rewards for information that results in an SEC enforcement action that generates sanctions of at least US$1 million. Whistleblower awards can range from 10% to 30% of the money collected in a case, which comes from an investor protection fund established by Congress that is financed through monetary sanctions paid by securities law violators to the SEC.
The program requires the SEC to protect the confidentiality of whistleblowers, and does not disclose information that might reveal a whistleblower’s identity.
The commission notes that it paid awards to four whistleblowers in fiscal 2013, and has awarded nine whistleblowers in fiscal 2014. “We’re pleased with the consistent yearly growth in the number of award recipients since the program’s inception,” McKessy said.
“Our client exposed extraordinarily deceitful and opportunistic practices that were deeply entrenched and well hidden,” said Erika Kelton, attorney with Washington, DC-based law firm, Phillips & Cohen LLP, which specializes in representing whistleblowers. “Federal regulators never would have known about this fraud otherwise, and the scheme to cheat investors likely would have continued indefinitely.”
The firm says that its client provided extensive assistance to the SEC; and, that the company involved went to great lengths to conceal the fraud. “I was very concerned that investors were being cheated out of millions of dollars and that the company was misleading them about its actions,” said the anonymous whistleblower in a statement released by the law firm. “Deception had become an accepted business practice.”
“The SEC was extremely responsive and acted quickly after our client provided detailed information about the fraud,” Kelton said. “It immediately launched an investigation.”
“This case demonstrates how effective the SEC whistleblower program is,” Kelton said. “Federal enforcement officials worked closely with the whistleblower to stop a scheme that hurt investors, and by doing so the government was able to hold wrongdoers accountable for their actions. Whistleblowers and investors are fortunate to have Sean McKessy leading the SEC Whistleblower Office.”