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SEC Whistleblower Program Overview

Following several highly publicized Ponzi schemes and investment scams, including the $65 billion fraud by Bernie Madoff, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. As part of Dodd-Frank, one goal focused on extending the whistleblower protection beyond the Sarbanes-Oxley Act of 2002 to further incentivize individual whistleblowers who exposed acts of securities fraud. This extension led to the creation of the Securities and Exchange Commission’s Whistleblower Program.

On May 25, 2011, the SEC adopted final rules of the Whistleblower Program and agreed to provide monetary incentives to individuals who came forth to the SEC with reports and information concerning possible violations of the federal securities laws. Under the program, eligible whistleblowers are entitled to an award of between 10% and 30% of the monetary sanctions collected in actions brought by the SEC and related actions brought by other regulatory and law enforcement authorities.

You can view the SEC’s press release on the Whistleblower Program here.

The SEC opened the Office of the Whistleblower on Aug. 12, 2011. Sean McKessy oversees the program.

Earlier this week, the SEC released its 2012 Annual Report on the Whistleblower Program to Congress. Among other things, the report includes a first full-year analysis of the program since its creation.

According to the report, the SEC received 3,001 tips, complaints and referrals from whistleblowers in all 50 states, the District of Columbia, and the U.S. territory of Puerto Rico as well as 49 foreign countries. The most common complaints were related to corporate disclosures and financials (18.2%), offering fraud (15.5%), and market manipulation (15.2%).

Of the 735 enforcement brought by the SEC during the fiscal year, 143 (19.5%) involved monetary sanctions that exceeded the program’s statutory minimum threshold of $1 million.

On Aug. 21, 2012, a whistleblower who helped the SEC stop a multimillion dollar fraud received nearly $50,000 – the first payout made under the SEC’s Whistleblower Program.

The award represents 30% of the amount collected in an SEC enforcement action against the perpetrators of the scheme, the maximum percentage payout allowed by the whistleblower law.

As of Sept. 30, 2012, the balance of the replenishing Investor Protection Fund, from which SEC whistleblower awards are paid, was more than $450 million.

Maddox Hargett & Caruso is currently assisting whistleblowers. If you believe your company might be participating in securities fraud, please contact us. We will keep your information confidential and protected.


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