The US Securities and Exchange Commission has awarded almost $4M to an individual who gave the regulator specific details regarding “serious misconduct” and provided help, including “specialized” expertise and knowledge, during the agency’s probe into the allegations. In its release announcing the award, the SEC did not provided more details about the case because to do so might give away the identity of the whistleblower, which it always seeks to protect.
Since the SEC Whistleblower Program was established in 2011, the agency has awarded 43 individuals about $153M for voluntarily giving the agency useful and original information that ended up rendering a successful enforcement action Already, such actions stemming from whistleblower-provided information has resulted in over $953M in financial remedies imposed against those found to be have engaged in misconduct or other wrongdoing. Whistleblowers can be awarded anywhere from 10-30% of the money collected if that sum is $1M or greater.
As we mentioned, typically the identities of SEC whistleblowers are kept confidential. One of the reasons for this is so that the whistleblower is protected from professional or financial retaliation, especially if the individual blew the whistle on an employer.
In another SEC whistleblower case, Reuters reported on the two analysts who turned whistleblower against Orthofix International NV, a Texas-based medical device manufacturer. In January, the company settled with the SEC for $8.25M and several of its ex-executives paid $120K in total penalties over accounting fraud charges.
The two analysts notified the Commission after they realized that there might be an issue because Orthofix’s earning reports demonstrated that it was taking longer than expected for the company’s wholesale customers to pay up, invoices were accumulating, and executives couldn’t provide a reasonable explanation why. The analysts suspected “channel stuffing,” which involves sending distributors more products than they can pay for or use. This is an illegal practice that helps the company’s earnings because it allows an entity to recognize revenue in advance while delaying shortfalls until later.
Now, the two analysts could be awarded up to $2.5M as SEC whistleblowers—although that amount might be even larger, as the information they provided also resulted in a second civil settlement related to Foreign Corrupt Practice Act violation allegations.
The SSEK Partners Group is a securities fraud law firm.
The SEC Order for this latest whistleblower award (PDF)
The SEC Order in the Orthofix Case for Accounting Violations (PDF)
The SEC Order in the Orthofix Case for FCPA Violations (PDF)
Not an inside job: How two analysts became SEC whistleblowers, Reuters, April 25, 2017