Waiting for a Whistleblower to Change Compliance Culture Could Prove Costly


The SEC’s Office of the Whistleblower posting of its Notices of Covered Action (“Notice”) should serve as a reminder to investment advisers and broker-dealers of the importance of developing a strong culture of compliance, including having policies and procedures designed to prevent and detect violations of law.  The SEC’s whistleblower rules govern how the SEC goes about awarding whistleblowers money for providing tips about possible federal securities and commodities law violations that lead to successful enforcement actions.  Under the SEC’s whistleblower program, eligible whistleblowers are entitled to an award of between 10% and 30% of the monetary sanctions the SEC collects in actions that it brings and related actions brought by other regulatory and law enforcement authorities.

The new Notice provides a list of actions in which the SEC obtained a final judgment or order, by itself, or together with other prior judgments or orders in the same action that were issued after July 21, 2010,  and that resulted in monetary sanctions over a $1 million.  The Notice gives individuals 90 calendar days to apply for an award.  The Notice covers a diverse group of SEC enforcement actions, including whistleblowing on (i) improper advisory fees charged to a registered fund (ii) “pump- and- dump” schemes (iii) unlawful tipping of information about clinical trials (iv) fraud related to unregistered boiler-room offerings (v) violation of  Reg SHO recordkeeping requirements  and (vi) inaccurate books and records of securities transactions, just to name a few.

No group is immune.  The Notice lists SEC whistleblower actions against large investment banks, investment advisers, including hedge funds and advisers to registered funds, as well as a number of broker-dealers and individuals.  Investment advisers and broker-dealers ought to study the list, if for no other reason than to learn what kinds of violations whistleblowers are reporting.  However, one hopes that the larger purpose would be for firms to review the list with an eye toward correcting policies and procedures to prevent wrongdoing and misconduct and to encourage employees to report violations internally when they occur.

 

 

Author: Dexter Johnson

The author is a an attorney who for the past 14 years has concentrated his practice in representing, successfully, investment advisers, broker-dealers, corporations and individuals who are subject to SEC, FINRA, State or other regulations and who may be the subject of regulatory examination, review or investigation. He formerly worked at the SEC. His regulatory and litigation experience has encompassed virtually every type of securities issue in the industry. He has also negotiated favorable outcomes in many of these matters for his clients.