On April 22, 2015, the SEC announced it awarded over 1.4 Million Dollars to a compliance whistleblower, the first of its kind under the Dodd Frank whistleblower law enacted in 2011 by the SEC. Unlike others, Compliance officers, and others whose very job it is to uncover such issues internally, are limited under the law to recovery only under two alternative theories. The first is only after the issue is reported internally to proper management and the company then does not adequately act on such internal reporting within 120 days of the whistleblower reporting it internally. 17 C.F.R. § 240.21F-4(b)(4)(v)(C). A recent $500,000 award for such a compliance individual took place just last month. The new award was based on an exception to the 120 day waiting requirement. The new seven figure award involved a compliance officer who reported the misconduct to the SEC after responsible management at the entity became aware of potentially impending harm to investors or the company and failed to take steps to prevent it.
When compliance individuals become aware of misconduct, they like all employees face the potential for retaliation by the firm. However, the employee has several tools to prevent such retaliation, including the prohibition by the same Dodd Frank statue of such retaliation by the firm. The statute created a federal private cause of action for such retaliation which allows for compensatory damages, reinstatement, and attorney fees. The SEC has also taken the position that it also can take enforcement action for any company that takes such action and has in fact done so in one case already. Further, as always many states such as New Jersey with its Conscientious Employee Protection Act (CEPA) and others have causes of action to protect any whistleblower. In fact long before the enactment of Dodd Frank, which we participated in drafting the SEC’s rules for, we successfully filed and pursued a CEPA claim in FINRA arbitration on behalf of senior compliance officer in a major Wall Street investment bank, who was isolated and stripped of his powers because of his internal reporting, having nothing to do with the SEC. Such resulted in a significant seven figure settlement in 2009, long before Dodd Frank. It is essential for any compliance person considering whistleblowing or reporting serious issues internally to consult a qualified whistleblower attorney and if their position has anything to do with the securities industry it is essential that the attorney is also familiar with FINRA Arbitration, securities issues, and the industry which is unique to other industries, so that their financial future is protected as much as possible in all scenarios, along with ensuring that the proper basis for any SEC Whistleblower submission is being complied with to allow for the reward.