New York Securities Lawyer Blog
In response to the mandates imparted by the Dodd-Frank Act of 2010 (the “Act”), the Internal Revenue Service (“IRS”), the Commodity Futures Trading Commission (“CFTC”) and the Securities Exchange Commission (“SEC”) (collectively referred to as “the Agencies”) have implemented agency specific whistleblowing programs. Under the Act, the Agencies are tasked with the oversight and administration of a mandatory reporting regime for tipsters to refer to when reporting potential securities law violations. The success of each agency’s respective whistle-blowing program in increasing as evidenced by the number of awards and tips received and reported to each agency. Since the creation of the Office of the Whistleblower last year by the SEC, it has reported the receipt of more than 2,700 tips of securities law violations. The SEC has also reported the issuance of its first award in the amount of $50,000 that resulted from a tip received about a multimillion-dollar fraud. In this case, the SEC opted for the maximum percentage payout to the tipster allowed under the law – thirty percent (30%) of the $150,000 it has collected to date in the case. While the actual amount of each award is deferred to the agency for determination, the Act requires that the award be at least 10 percent (10%), and no more than 30 percent (30%), of the sum amount recovered by the agency as a result of the tip. There are a number of discretionary factors that are generally considered by the agency in making an award determination, namely: (1) the significance of the information provided to the success of an enforcement action; (2) the relevancy of the information to the agency’s programmatic interest; and (3) whether an award will increase the agency’s ability to enforce the federal securities laws and encourage the submission of high-quality information from whistleblowers. Despite the evident success of the Act’s whistle-blowing program, there has been a growing industry-wide debate with regard to whistleblower eligibility. Under the IRS’s whistleblower statute, a distinction is drawn between a whistleblower who acted as a participant in the activity at issue, and is therefore eligible to receive an award award, and the coordinator of such activity, who is not. See 26 U.S.C. § 7623(b)(3). This distinction gives even more rise to the necessity of a potential whistleblower’s legal advisement in the area of securities law enforcement. At Lax & Neville LLP, we represent individuals, securities industry employees and securities industry companies seeking representation in employment matters and securities-related and commercial litigation. Please contact our team of attorneys for a consultation at (212) 696-1999.