Record SEC Award May Spur More Firms to Develop Whistle-Blowing Practices

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By Ellen Rosen

Sept. 24 — The Securities and Exchange Commission's record $30 million whistle-blower award announced this week may prompt more firms to develop practices in this area.

Enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC's whistle-blower program is intended to encourage people to come forward with evidence of securities fraud.

Awards range from 10 percent to 30 percent of the money collected in a case, meaning the recent award reflects a settlement or judgment between $100 million to $300 million, said Christopher Robertson of Seyfarth Shaw LLP, who advises companies on whistle-blower complaints.

Because attorneys typically take such cases on a contingency basis, the payout for lawyers can be large as well. Erika Kelton, the lawyer at Phillips & Cohen LLP who represented the whistle-blower in the recent case, declined to disclose her fee.

‘Great Personal and Professional Risk.'

A whistle-blower can endure a protracted process, Robertson said, and still “the SEC can decide not to bring a case and recovery could be small.” The awards come from an SEC fund, not from the companies.

Kelton said an employee who blows the whistle “does so at great personal and professional risk.” Although federal law prohibits retaliation, people sometimes still lose their jobs, both attorneys said.

Three Types of Firms

Robertson said he expects three types of firms to try to expand into this area: “traditional qui tam lawyers,” who bring government fraud cases; plaintiff-side employment firms; and securities law firms that more typically file investor actions.

Congress authorized the SEC's whistle-blower program in 2010 as the agency was trying to bolster its enforcement program after having failed to act on a detailed tip about Bernard Madoff. The SEC has made payouts to more than a dozen whistle-blowers, including a then-record $14 million reward in 2013.

No details were provided about the whistle-blower who received the recent record award, except that the person lives outside the U.S.

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