The recently enacted Restoring America To Financial Stability Act of 2010 creates a new program designed to incentivize whistleblowers to disclose fraud in connection with financial securities to the U.S. Securities Exchange Commission (SEC), and to protect those whistleblowers from retaliation by their employers. Under the program, whistleblowers may provide information relating to a violation of the securities laws to the SEC. If that information leads to a successful judicial or administrative action by the government, then the SEC will award the whistleblower between 15-35% of the total amount of monetary sanctions collected. The exact amount of the award within this range will be determined by the SEC in its sole discretion; however, it is required to take into consideration factors such as the significance of the information to the success of the Government’s case and the degree of assistance provided by the whistleblower. Whistleblowers are only entitled to an award if the judicial or administrative action results in monetary sanctions that exceed $1,000,000.
Types of Securities Fraud
The nature and form of securities fraud can vary widely, but may include:
- Market manipulation
- Misstatements or omissions of fact in disclosures to the SEC
- Corporate mismanagement resulting in breach of fiduciary duties to shareholders
- Fraudulent accounting practices that misrepresent corporate assets or liabilities
- Insider trading
- Backdating stock options
- Ponzi schemes
The SEC’s whistleblower program may also apply to the disclosure of fraud in connection with the sale or trading of commodity-related interests, to the extent that such interests are considered securities.
Foreign Corrupt Practices Act
The new SEC whistleblower program also creates an avenue for whistleblowers to report violations of the Foreign Corrupt Practices Act (FCPA). Under the FCPA’s anti-bribery provisions, it is unlawful for a company, or an individual acting on the company’s behalf, to offer, give, promise to give, or to authorize the giving of anything of value to any foreign official in order to obtain or retain business, or to direct business to a certain person. The FCPA also requires companies whose securities are listed in the United States to satisfy certain accounting requirements. Companies must make and keep books and records that accurately and fairly reflect corporate assets and must create and maintain an accurate set of internal accounting controls. The SEC is responsible for civil enforcement of the FCPA.
Protection Against Retaliation
In addition to creating a new forum for whistleblowers to disclose fraud in connection with securities or violations of the FCPA, the Restoring America To Financial Stability Act also includes a number of provisions designed to protect whistleblowers from retaliation by their employers. The Act prohibits employers from taking any adverse employment action or otherwise discriminating against an employee for providing information to the SEC. Any employee that is subjected to discrimination or retaliation has the right to file a lawsuit against his or her employer and seek reinstatement with the same seniority status, two times the amount of back pay owed to the employee, and compensation for litigation costs, including attorneys’ fees.
In order to further protect whistleblowers from retaliation, the Act allows a whistleblower to anonymously submit information to the SEC, as long as the whistleblower is represented by an attorney who submits the information on the whistleblower’s behalf. The SEC and any other government agencies assisting the SEC with its investigation must also keep the information provided by the whistleblower confidential until the SEC is required to disclose the information in connection with a public proceeding initiated by the SEC.