SEC Enforcements Offer Foreign Whistleblowers Reward Opportunities

There’s been a lot of opportunities for foreign whistleblowers to earn rewards under the SEC whistleblower program over the past 15 months. A quick and dirty review revealed international conduct involved in nearly 50 out of the 182 Notices of Covered Action posted by the U.S. Securities and Exchange Commission since January 1, 2014.

A Notice of Covered Action by the Office of the Whistleblower is posted any time a final judgment or order issued after July 21, 2010 results in monetary sanctions exceeding $1 million. Prior judgments or orders in the same action can be combined in order to reach the monetary amount necessary to trigger a Notice.

They are posted in every action regardless of whether there has been a tip, complaint or referral. From the date of posting, individuals have 90 calendar days to fill out Form WB-APP and submit the form to the Whistleblower Office in order to apply for an award.

After publishing yesterday’s article on Brazil and the FCPA, I decided to take a look at the enforcement actions. Every year, the SEC sends an annual report to Congress on the program and it has included data related to international whistleblowers since the first publication in 2011. This data is comprised of a count of the location of the whistleblower. That’s how I found out that Brazil had only submitted 13 tips.

The SEC has also announced that there have been at least four international whistleblowers to date. This information was in the press release issued by the securities regulator when it announced the largest award to date in October 2014 – $30 million to a whistleblower located overseas. The reason why I say “at least” is because there has been a subsequent announcement of a reward by the agency and I’m unaware of the location of the person.

So what did I do to determine that there were nearly 50? I looked through the postings on the SEC website. There’s been over 600 posted since August 2011. For those that are curious why there’s a year gap between the passage of Dodd-Frank and the start of the Notices, I suspect it correlates with the opening of the Whistleblower Office. There were well over 100 notices posted on August 12th, which I expect is the number for the second half of 2010 and the start of 211.

In my review of the 2014 and 2015 postings, I looked for enforcement actions that had some international angle. The company was located overseas or a portion of the fraud happened outside the United States, for example. Essentially, anything that would offer the opportunity for an individual located outside America to gather the data necessary to discover the fraud and report it to the Dodd-Frank whistleblower programs.

In my review, I identified 49. There may be a few that I missed as it wasn’t immediately apparent whether any conduct happened outside the United States. I also skipped the inclusion of a few enforcement actions that duplicated previously counted international actions in order to not create an artificially high count simply because the securities regulator brought actions against separate players rather than one action encompassing all involved companies and individuals. Additionally, I hoped that by doing this I would also help counterbalance any that I included where people actually might not have had an opportunity to discover the fraud overseas.

The result of my review was that more than a quarter of enforcement actions brought by the SEC involved some conduct, actions or involvement outside of the country that could have led a person to file a whistleblower tip with the agency.

Dodd-Frank authorized the SEC to pay rewards of between 10 and 30 percent when information provided leads to monetary sanctions over $1 million. Although a few courts have held that the anti-retaliation protections by the bill do not extend to international whistleblowers because of the doctrine of extraterritoriality, the SEC has continued to pay awards to individuals located outside of the USA. In its largest award to date, it specifically justified its right to do so.

I also made note of some of the types of cases that might come from overseas. Some of the more notable examples of cases include:

1. Foreign Corrupt Practices Act – U.S. issuers or companies are not permitted to provide anything of value to foreign officials in order to obtain or retain business improperly. This includes payments made through subsidiaries or intermediaries and payments made to employees of state-owned enterprises. There were 10 incidents of FCPA anti-bribery violations or internal accounting control problems.

2. Overseas Investors – At least one of the rewards so far has involved an effort by an individual in the United States to solicit investments from foreign investors while making certain misrepresentations about their investment. There were a number of other enforcement actions that identified schemes to target overseas investors.

3. Stocks of Overseas Companies – There were a number of companies located overseas that were trading on U.S. stock exchanges and investors were injured due to either market manipulation or misappropriation of funds orchestrated by their leadership or key players. This included several schemes involving reverse mergers out of China. There were also investment solicitations for sham companies or

4. Unregistered Cross Border Brokerage Services – Several investment advisors provided cross-border services without being registered or licensed with the SEC.

5. Improper Trading by Individuals Located Overseas. These included improper trading by the employees of an investment bank as well as insider trading by foreign citizens or advisors to overseas companies with information about upcoming mergers.

In addition to these five noteworthy examples, there were also cases of investment funds located overseas defrauding investors or their advisors promoting ponzi schemes.

Located overseas?  Our SEC whistleblower lawyers can assist you with filing your whistleblower tip with the Commission.  Our FCPA attorneys are working on a number of different potential cases and this is a particular area of interest for our law firm.  Please contact us for a confidential consultation.

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