On April 22, the SEC announced an award of more than $1 million to a compliance officer for providing the agency with information on the company’s misconduct. The Dodd-Frank Act whistleblower regime is designed to encourage employees to submit evidence of securities fraud. When sanctions of a successful enforcement action exceed $1 million, the program allows for up to 30 percent of the money collected to be provided to the whistleblower. Since the program began in 2011, 16 whistleblowers have received upwards of $50 million from an investor protection fund, which was established by Congress and is financed through the monetary sanctions the SEC receives from securities law violators.
On November 16, the SEC’s Office of the Whistleblower (OWB) issued its 2015 annual report to Congress on its Whistleblower Program established pursuant to Dodd-Frank. According to the report, in Fiscal Year 2015, the OWB received more than 3,900 whistleblower tips – a 30% increase since 2012, which the SEC attributes to increased public awareness of the program due to Dodd Frank’s implementing rule awarding tipsters 10 to 30 percent of a securities violation when the penalty is greater than $1 million. Additional items to note from the report include: (i) the SEC brought its first enforcement action against a company for using language in confidentiality agreements that impeded a whistleblower from reporting possible securities law violations; (ii) the SEC received whistleblower submissions from all 50 states and the District of Columbia, along with tips from individuals in 95 countries outside of the U.S.; and (iii) the most common complaint categories reported were Corporate Disclosures and Financials, followed by Offering Fraud and Manipulation.
On February 26, New York AG Eric Schneiderman announced that he intends to propose state legislation to reward and protect employees who report information about misconduct in the banking, insurance, and financial services industries. The “Financial Frauds Whistleblower Act” would allow for compensation to individuals who voluntarily report fraud, and whose information results in more than $1 million in penalties or settlement. In addition, the legislation would prohibit retaliation from the employer and guarantee the confidentiality of the whistleblower’s information.
On February 11, the DOJ announced a $7.9 million settlement with a Delaware-based pharmaceutical manufacturer for allegedly violating the False Claims Act by engaging in a kickback scheme with a pharmacy benefits manager corporation. The pharmaceutical manufacturer denies the DOJ’s allegations that it paid $40 million to a pharmacy benefits manager corporation in exchange for “sole and exclusive” recommendation of a certain drug. According to the two whistleblowers, both former employees for the accused pharmaceutical manufacturer, the accused manufacturer paid the pharmacy benefits manager “through price concessions on [other] drugs.” Under the whistleblower provision of the False Claims Act, the two former employees will receive a combined payment of $1,422,000.
This month, FINRA issued guidance notice 14-40 to remind firms that “it is a violation of FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade) to include confidentiality provisions in settlement agreements or any other documents, including confidentiality stipulations made during a FINRA arbitration proceeding, that prohibit or restrict a customer or any other person from communicating with the Securities and Exchange Commission (SEC), FINRA, or any federal or state regulatory authority regarding a possible securities law violation.” Additionally, the notice addresses FINRA’s Code of Arbitration Procedure for Customer Disputes, emphasizing that the parties involved in the arbitration discovery process must “cooperate with each other to the fullest extent practicable in the voluntary exchange of documents and information to expedite the arbitration process.” FINRA further specifies that “stipulations between the parties or confidentiality orders issued by an arbitrator as part of the discovery process regarding the non-disclosure of the documents in question outside the arbitration of the particular case do not restrict or prohibit the disclosure of the documents to the SEC, FINRA, any other self-regulatory organization, or any other state or federal regulatory authority.”