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  • Bank to pay $18 million for violating a whistleblower protection rule

    Securities

    On January 16, the SEC accepted a global financial services firm’s offer of settlement to resolve allegations of violations of the whistleblower protection rule, which prohibits any action that might impede an individual from communicating with the SEC about securities law violations. According to the SEC, from March 2020 through July 2023, the firm asked clients to sign a confidential release if they were issued a credit or settlement from the firm of more than $1,000. The release required clients to “promise[] not to sue or solicit others to institute any action or proceeding against [respondent] arising out of events concerning the [a]ccount.” The SEC claimed that at least 362 clients have signed the release since 2020. In connection with the settlement, the firm agreed to be censured, to cease and desist further violations of the rule, and to pay an $18 million civil money penalty. 

    Securities Securities Exchange Commission Whistleblower Enforcement Administrative Procedure Act Settlement Securities Exchange Act

  • SDNY pilots new whistleblower program to protect individuals

    Agency Rule-Making & Guidance

    On January 12, the SDNY launched its Whistleblower Pilot Program to protect individuals who report company wrongdoing from any future prosecution by the DOJ. The SDNY issued this program to encourage the “voluntary self-disclosure of criminal conduct” within white-collar practice areas undertaken in companies, exchanges, and financial institutions, among others. The program aims to reduce fraud or corporate failures affecting market integrity. Specifically, future whistleblowers who approach SDNY with a claim will enter into a non-prosecution agreement (NPA) only if the following conditions are met: the misconduct is not public and is not already known to the SDNY; the whistleblower discloses the information voluntarily, and is not in response to an inquiry or obligation; the whistleblower must assist in the investigation; the information is truthful; the whistleblower is not a government-elected or an appointed official, among others; and the whistleblower has not engaged in any criminal conduct. The policy also provides prosecutors and supervisors with factors to consider when deciding whether to enter into a NPA with a whistleblower.

    Agency Rule-Making & Guidance SDNY DOJ Whistleblower White Collar NPA

  • SEC awards more than $28 million to seven whistleblowers

    Securities

    On December 22, 2023, the SEC announced awards totaling more than $28 million to seven whistleblowers whose information and assistance led to a successful SEC enforcement action. According to the redacted order, five of the whistleblowers provided significant information early in the investigation, participated in voluntary interviews, provided supporting documents to SEC staff, and identified key witnesses. The SEC also added that the whistleblowers made several attempts to internally report their concerns to company management. Two whistleblowers provided significantly less information than the other five later into the investigation, but still qualified for a percentage of the monetary sanctions collected in the covered action. Creola Kelly, Chief of the SEC’s Office of the Whistleblower, stated that “[t]hese whistleblowers provided valuable information and substantial assistance that played a critical role in the SEC returning millions of dollars to harmed investors.”

    One claimant’s whistleblower award application was denied because they did not communicate directly with the SEC staff responsible for the Covered Action Investigation and none of the information provided by the claimant was forwarded to the responsible staff. As such, the claimant did not provide original information that led to the successful enforcement action.

    Payments to whistleblowers are made out of an investor protection fund, established by Congress, which is financed entirely through monetary sanctions paid to the SEC by securities law violators.

    Securities Enforcement Whistleblower

  • 2nd Circuit affirms dismissal of whistleblower lawsuit alleging FCA violations

    Courts

    On October 30, the U.S. Court of Appeals for the 2nd Circuit affirmed a district court order dismissing a whistleblower lawsuit alleging violations of the False Claims Act (FCA). The three-judge panel concluded that they did not need to “address the public disclosure bar because the [second amended complaint]… fails to state a claim for a violation of the FCA.” According to the panel, the plaintiff did not allege that the defendant knowingly made a misrepresentation material to the government’s decision and that “failure to adequately plead either of these requirements is fatal to a relator's claim." 

    The original whistleblower complaint, filed in 2014, alleged that the defendant covered losses on loans that it acquired by taking advantage of a shared loss agreement with the FDIC.  The complaint also stated that the defendant knowingly reported write-downs on loans already paid off, sold, or irrelevant to the portfolio. The FDIC declined to intervene, and the case was dismissed. The plaintiff appealed and oral arguments were heard on October 12; however, the order found that the plaintiff failed to identify a false claim or false record and did not establish scienter or motive to commit fraud. 

    Courts Second Circuit Whistleblower False Claims Act / FIRREA Appellate Consumer Finance Lending FDIC

  • 2nd Circuit: Court upholds dismissal of whistleblower suit alleging Iran sanctions violations

    Courts

    On October 27, the U.S. Court of Appeals for the Second Circuit denied a petition for a panel rehearing en banc in a False Claims Act (FCA) suit that was dismissed in 2020. The whistleblower suit, filed in 2019, alleged violations of the U.S.’s sanctions on Iran by exchanging foreign currency for U.S. dollars on behalf of Iranian and related terrorist entities. In July 2020, the whistleblower suit was dismissed after the court agreed with U.S. Attorney for the Southern District of New York’s motion to dismiss because the compliant was “legally deficient as it is premised on an incorrect legal theory of liability that is inconsistent with both the FCA and the law regarding civil forfeiture.” The plaintiff appealed to the 2nd Circuit arguing that the district court needed to hold a hearing; however, the 2nd Circuit found the suit had been properly dismissed and that the judge considered extensive briefing before making the determination of the dismissal.

    Courts Second Circuit En Banc FCA Whistleblower Sanctions Iran Appeals

  • SEC awards whistleblower more than $18 million

    Securities

    On August 25, the SEC announced a whistleblower award of $18 million to a whistleblower who provided new information and assistance that led to a successful SEC enforcement action. According to the redacted order, the whistleblower provided additional helpful information and substantial, continuing assistance that helped the SEC staff saved f time and resources during the investigation. In the same order, the Commission affirmed the denial of a second claimant’s award claims after claimant 2 argued that they were the source of the original information that led to the opening of the investigation. The SEC determined that they had insufficient evidence to support their claims and that the Commission’s staff used claimant 1’s information, not claimant 2’s. Moreover, the claimant 2 did not satisfy “Rule 21F-4(c)(3), as Claimant 2 did not submit information to the Commission within 120 days of reporting it to the Company. Claimant 2 submitted information to the Commission after the Covered Action was filed and settled.”

    Securities SEC Whistleblower Investigations Enforcement

  • SEC awards whistleblowers more than $104 million

    Securities

    On August 4, the SEC announced awards totaling more than $104 million to seven whistleblowers whose information and assistance led to a successful SEC enforcement action, as well as two related actions brought by another agency. According to the Press Release, “the seven whistleblowers were composed of two sets of joint claimants and three single claimants, and each provided information that either prompted the opening of or significantly contributed to an SEC investigation.” The seven claimants contributed assistance including providing documentation to support the allegations, identifying potential witnesses, and sitting for interviews. According to the redacted order, Claimants 1 and 2, both foreign nationals, provided information that in part caused the SEC to open the investigation that led to the charges. The whistleblowers also provided substantial ongoing assistance, including providing multiple written submissions, communications, and interviews, the SEC said, finding also that the whistleblower satisfied the requirements under Rules 21-F-3(b) for related actions awards as the related successful enforcement actions were partly based on the same information provided to the Commission. However, in the same order, the SEC affirmed the denial of two other claimants’ award claims after determining, among other things, that the individuals did not submit information leading to the successful enforcement of the covered action.

    Securities SEC Enforcement Whistleblower Investigations

  • SEC awards whistleblower $9 million

    Securities

    On July 12, the SEC announced a whistleblower award totaling approximately $9 million to a claimant who provided information and assistance that led to a successful enforcement action. According to the redacted order, the claimant “repeatedly raised concerns internally” and “provided highly significant and detailed information that alerted enforcement staff to the underlying conduct, prompting the opening of the investigation.” The claimant then “provided critical and ongoing assistance throughout the investigation, including meeting with [e]nforcement staff multiple times.” As a result of that information and assistance, “millions of dollars have been returned to harmed investors.”

    Securities SEC Enforcement Whistleblower Investigations

  • SEC’s $279 million whistleblower award is largest ever

    Securities

    On May 5, the SEC announced the Commission’s largest-ever award—nearly $279 million—awarded to a whistleblower for providing information and assistance leading to the successful enforcement of SEC and related actions. The SEC noted that this award is more than double the previous record-holding $114 award issued in October 2020. According to the redacted order, the whistleblower voluntarily provided original information, which caused enforcement staff to expand the scope of the investigation and saved the SEC significant time and resources. The whistleblower also provided substantial ongoing assistance, including providing multiple written submissions, communications, and interviews, the SEC said, finding also that the whistleblower satisfied the requirements under Rules 21-F-3(b)(1) for related actions awards as the related successful enforcement actions were partly based on the same information provided to the Commission. However, in the same order, the SEC affirmed denial of two other claimants’ award claims after determining, among other things, that the individuals did not submit information leading to the successful enforcement of the covered action.

    Securities SEC Enforcement Whistleblower Investigations

  • SEC awards whistleblowers more than $12 million

    Securities

    On March 31, the SEC announced awards totaling more than $12 million to two whistleblowers whose information and assistance led to a successful SEC enforcement action. According to the redacted order, the first whistleblower prompted the opening of the investigation and provided information on violations that would otherwise have been difficult to detect, including by identifying key witnesses and helping enforcement staff understand complex fact patterns and issues concerning the matters under investigation. This information was also used to create an investigative plan and craft initial document requests. Citing the first whistleblower’s persistent efforts to remedy the issues, and the fact that the information was received several years before the second whistleblower’s information, the SEC said the first whistleblower will receive more than $9 million. The second whistleblower will receive $3 million for submitting important information “as a percipient witness” during the course of the investigation on topics that went beyond what the first whistleblower had been able to provide.

    Securities SEC Enforcement Whistleblower

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