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Should Employees Have FCPA Training?

John Peterson — Wed, 07 Feb 2024 16:33:00 +0000

Article by Managing Attorney, John Peterson

Whether you run a business or work in compliance, one of the most frequently asked questions on the Foreign Corrupt Practices Act (FCPA) is: Do I have to train employees on FCPA compliance?

In this article, we explain when a company has to train employees on FCPA compliance, which employees need to be trained, and provide guidelines for an FCPA compliance checklist. If you’re in a hurry, here are the takeaways:

The FCPA is a law that applies to all U.S. companies, both public and private. Fines for violating the FCPA are usually millions of dollars and can include prison time for individuals;
Determining which employees must receive FCPA training depends on whether the employee is exposed to bribery and corruption risks. It does not matter whether they are a foreign or domestic employee;
Publicly traded companies are likely legally required to train certain employees on FCPA compliance. Private companies, on the other hand, are much less likely to have an obligation to do so;
Regardless of whether there is a legal obligation to train employees on FCPA compliance, there are at least five good reasons for companies to train employees with an FCPA compliance checklist.

This article was prepared by FBR’s Managing Attorney John Peterson. John is an FCPA whistleblower attorney with almost a decade of experience advising on FCPA issues. John has represented numerous Fortune 500 companies in FCPA investigations and currently represents brave FCPA whistleblowers who anonymously report FCPA violations to the U.S. authorities. If you have a question on any material discussed in this article, please contact FBR here.

What is the FCPA?

The FCPA is a U.S. law that prohibits bribery of foreign government officials. The FCPA has two core principles that should be mentioned during FCPA training:

All U.S. persons and companies are forbidden from bribing foreign government officials. (This is referred to as the FCPA’s ‘anti-bribery’ provision).
Publicly traded companies must maintain a system of ‘internal controls’ to ensure financial misconduct (like bribery) does not occur (This is called the FCPA’s ‘internal controls’ or ‘books and records’ provisions).

Both provisions work in tandem to prevent bribery and ensure that public companies have accurate books and records that investors can rely on. For more background on these provisions, check out the Department of Justice’s (DOJ) FCPA resource guide, which functions as an FCPA Bible for compliance personnel. These resources, such as creating an FCPA compliance checklist, are ideal for FCPA training.

What is a Bribe?

The first core principle of the FCPA is that U.S. persons and companies are forbidden from bribing foreign officials. ‘Foreign official’ is a broad term that covers all foreign government employees, including government agencies and institutions. For example, even low-level employees of a hospital or university could be considered foreign officials if the institution is owned or run by a foreign government.

For the purposes of the FCPA, a bribe occurs when someone gives or promises ‘anything of value’ to a foreign official with the intention of gaining something in return. During FCPA training, you can emphasize that, usually, this happens when a company gives a foreign official something personally valuable to the official in exchange for favorable business treatment. Examples of bribery prohibited by the FCPA include giving cash, gifts, travel, entertainment, job opportunities, or charitable donations where the motivation is to obtain a business benefit.

An important point to remember is that bribes are not always initiated by the company; sometimes, they are explicitly requested by foreign officials. Simply because a foreign official requests a bribe does not exempt it from the FCPA– which is important to note during FCPA training. The exceptions to the FCPA’s anti-bribery provisions are extremely limited and rarely invoked but should still be a part of your FCPA compliance checklist.

What is a System of Internal Controls?

The second core principle of the FCPA is that publicly traded companies must have a system of internal accounting controls that ensure that the company’s money is spent in accordance with its policies and recorded properly in the company’s accounts. This provision of the FCPA tries to ensure that public companies have internal rules and procedures designed to stop financial misconduct and ensure that a company’s accounting records are accurate. FCPA training should emphasize your company’s system of internal controls.

The FCPA does not specify a particular model of ‘internal controls’ for public companies to use. It leaves it up to each company to design its controls based on the unique risks and circumstances presented by the company’s business. However, the DOJ and the Securities and Exchange Commission (SEC) have published detailed guidelines on what they view as the principles of a modern compliance program, and these guidelines should be read as instructions for building an adequate system of internal controls.

What are the Penalties for Violating the FCPA?

Proper FCPA training involves highlighting the potential penalties for any violations in your FCPA compliance checklist. The FCPA is enforced by the DOJ and the SEC. This means that both agencies can investigate and fine companies for violating the FCPA. For corporations, FCPA fines regularly cost over a hundred million dollars and, on a handful of occasions, have even surpassed a billion dollars. Individuals can also face fines as well as up to 20 years in prison for criminal violations of the FCPA’s anti-bribery provisions. If you are looking for a catalog of previous FCPA fines and offenses, Stanford University has a helpful database of prior FCPA fines that can be accessed here.

What is FCPA Training?

FCPA compliance education is training to help employees understand what the FCPA is, what the FCPA prohibits and requires, and most importantly, what a company expects an employee to do when faced with FCPA issues.

An FCPA compliance checklist should teach employees how to recognize FCPA red flags and how to deal with situations where FCPA concerns arise. This should include training on prior cases brought by the SEC and DOJ, which illustrate real-world examples of FCPA violations. This training provides a good opportunity to detail your company’s system of internal controls to ensure your employees understand the resources available to them.

FCPA training should be tailored to the role or business unit that the employee works in so that the training can address situations the employee is most likely to encounter. Training should also provide specific advice on what the employee should do in those situations and how to report potential FCPA violations.

Compliance training can take many forms, but ideally, it should be conducted in person by a compliance professional. While video instruction and online materials like an FCPA compliance checklist are helpful, there is no substitute for in-person training from an experienced compliance professional who can answer questions in real time. The FCPA training should take place in small groups where the employee is separated from their supervisor to give them the confidence and freedom to ask questions without fear of embarrassment or retaliation.

Does a Company Have to Train Employees on FCPA Compliance?

Generally speaking, if a company is private, i.e., not publicly traded, it’s unlikely that the company has a legal obligation under the FCPA to provide employees with FCPA compliance instruction. However, if a company is publicly traded, it’s more than likely that the company is required to provide FCPA training to certain employees.*

As mentioned above, publicly traded companies are legally required by the FCPA to have a reasonable ‘system of internal controls.’ There is no explicit rule stating that FCPA compliance education must form a part of this system, but if the company does business outside the U.S., it’s likely that the company has some exposure to the risk of FCPA violations. For example, any business outside the U.S. is likely to involve employees interacting with foreign officials who are customs officers, issuers of licenses or contracts, or who are in charge of purchasing goods on behalf of government institutions. These situations should be included in FCPA training or an FCPA compliance checklist, as they all present bribery and corruption risks and, therefore, FCPA risks.

When there is an obvious FCPA risk, authorities such as the DOJ and SEC are likely to consider a failure to train employees on FCPA compliance as a failure to maintain adequate internal controls. This would constitute a breach of the FCPA’s internal controls provisions.

*As companies are unique, there are various circumstances that could alter this analysis. Certain private companies without stock traded in the U.S. may, in fact, be legally required by contract, state, or industry rules to conduct FCPA training for their employees. Similarly, public companies may be able to avoid the obligation to train employees on the FCPA if compliance training on an equivalent foreign anti-bribery law is sufficiently similar or if they have no functional risk exposure to FCPA violations. At base, there is no substitute for tailored legal advice on this subject, and all companies should consult with experienced FCPA counsel before determining whether they have an obligation to train employees on FCPA compliance.

What Employees Must be Trained On FCPA Compliance?

If a company is required to conduct FCPA training for their employees, the next logical question is: Which employees must be trained?

Any proper FCPA compliance checklist will maintain that compliance training is most likely required for employees who are at risk of committing, assisting, facilitating, or witnessing FCPA violations. In particular, this will include any employees who interact with foreign officials, approve discretionary payments or expenditures in foreign jurisdictions, or are involved with obtaining licenses or contracts from foreign governments.

When looking at foreign and domestic (U.S.) employees, the analysis does not change. Whether the employee needs FCPA training will depend on whether they are in a position to commit, assist, facilitate, or witness an FCPA violation. For the purposes of legal training obligations, it does not matter whether the employee is foreign or domestic.

From a practical perspective, however, FCPA compliance training is arguably more important for foreign employees than it is for domestic employees. This is because bribery of foreign officials usually takes place outside the U.S., meaning that foreign employees are more likely to witness the violation.

How do I Report FCPA Violations?

For employees, reporting FCPA violations can be a daunting prospect, even with quality FCPA training. Reporting to the wrong person or organization can seriously affect an employee’s legal rights and could expose them to harassment, retaliation, or worse. Even if a company provides a compliance hotline as part of their FCPA compliance checklist, which many companies do, reporting internally can mean the employee misses out on whistleblower protections or the potential to claim a whistleblower award for reporting the conduct. These legal protections can be critically important to help employees avoid retaliation, and FCPA whistleblower awards can be substantial. As an employee, it’s crucial to stay informed on FCPA issues. Providing yourself with FCPA training could mean the difference between missing a violation and earning a massive whistleblower award.

Any employee who has witnessed a potential FCPA violation or who is considering blowing the whistle on FCPA misconduct should speak to a qualified FCPA whistleblower attorney as soon as possible and before reporting internally. Most whistleblower attorneys offer a free and confidential consultation, which will give the employee all the information they need to make a decision on where, when, and whether to report the violation. As whistleblowers often face harassment and retaliation for reporting FCPA violations, speaking with an attorney with substantial FCPA training before reporting is essential to mitigate this risk.

For companies, reporting FCPA violations to authorities can also have major benefits, including avoiding prosecution and reducing fines. Companies who believe they may have violated the FCPA should immediately contact outside counsel who can investigate the potential violation and advise on whether reporting is needed.

Five Reasons You Should Provide FCPA Compliance Instruction

While not all companies are required to give FCPA compliance training, all companies should strongly consider it. At the very least, every employee should have access to an FCPA compliance checklist. Here are the top 5 reasons every company should provide FCPA training:

Training prevents violations. FCPA fines regularly run over $100 million, meaning that a company could be financially devastated if even one of its employees violates the FCPA. Giving gifts and paying for entertainment can be customary when doing business in some parts of the world, and it’s possible that even well-intentioned employees can breach the FCPA without intending to. Implementing a system of FCPA compliance instruction can significantly reduce the chances that employees breach the FCPA and, therefore, significantly reduce the chance that the company faces a multi-million dollar fine.
Training increases reporting. Sometimes, despite the company’s best efforts, employees engage in FCPA violations. However, if proper FCPA training was provided to other employees in the organization, even if an employee violates the FCPA, it is more likely that they will be in a position to recognize the violation and report it to the company. This increase in reporting gives the company a better chance at stopping further violations, mitigating the damage, and taking appropriate action to reduce the risk of prosecution. For example, if the company identifies the violation and reports it to the authorities, the company has a good chance of avoiding prosecution. An easy-to-reference FCPA compliance checklist can make these violations more obvious to trained employees.
FCPA training can lead to reduced fines. If a company has a robust corporate compliance program, this will be taken into account by authorities when deciding whether to prosecute an alleged FCPA violation and when determining how much a company should be fined, if a fine is appropriate. When a company has good FCPA compliance instructions, it increases the chances the company will avoid prosecution or receive a reduced fine.
Training can improve productivity. FCPA violations are not only costly because of the potential for fines, but they can also be an enormous waste of time and resources for a company. FCPA training allows employees to recognize and avoid situations that will potentially lead to FCPA complications. If business units don’t recognize FCPA red flags early, they can invest time and resources on deals and joint ventures that ultimately have to be scrapped because of compliance concerns. By pursuing opportunities that are more compliance-friendly, employees can save the company time and resources, thereby improving business unit productivity.
Training can enhance corporate culture. Failing to train employees on FCPA compliance can suggest that a company does not value corporate social responsibility. Corporate responsibility is increasingly being used by investors and prospective employees to select companies that they wish to invest in or work for. By investing in FCPA training, a company can promote a healthy corporate culture of ethics and responsibility, which can benefit the company from an investment and employment perspective.

More Resources on the FCPA

The FCPA can be intimidating to companies and employees alike, but it doesn’t have to be. Explore more articles about the FCPA, including past whistleblower cases, with the FBR Award Journal. If you are unsure if you’ve witnessed an FCPA violation and are thinking about blowing the whistle, take our award-winning evaluation before sending us an email.

Our expert team at FBR has extensive FCPA training, and we are passionate about bringing corporations to justice while supporting and protecting those brave enough to come forward with information. Depending on your responses to the evaluation, you may be informed of unique circumstances that could affect your eligibility for a whistleblower reward. Please contact our office for a free consultation to get specific legal advice.

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Whistleblower misses the mark but gets $28 Million award

John Peterson — Mon, 20 Nov 2023 19:33:31 +0000

Article by John Peterson, Managing Attorney, FBR.

You probably don’t think too much about those small TVs in the back of the seats on airplanes beyond checking out your entertainment options. Maybe, on a long enough flight, you have found yourself wondering who makes those in-flight TVs. It may be Panasonic Avionics, a company that just paid an enormous fine to settle bribery-related charges with the U.S. government. If you’re looking for in-flight entertainment, how about the story of the whistleblower who picked up a mouth-watering $28 million whistleblower reward for starting the investigation, even though they didn’t work at the company and missed the mark on the details of the bribery.

The Bribery Backstory

The story of the whistleblower who missed the mark but got a $28 million award starts back in the late 2000’s when Panasonic was selling in-flight entertainment systems in the Middle East. Panasonic was negotiating a $100 million deal with a Middle-Eastern airline, a significant amount by any standard and likely an important deal for the company. So important in fact, that during the negotiations with the airline, Panasonic secretly offered a side-deal to the airline employee who they were dealing with in the negotiations: a “consulting” job worth almost $1 million. Not surprisingly, the airline employee took the consulting job and Panasonic got the $100 million deal, with both parties making sure the airline didn’t find out about the side-deal.

Documents filed by the Department of Justice show that the employee who got offered the side-deal had influence over who got the $100 million contract. He had lobbied for Panasonic while he was negotiating his new “consulting” job with them. Shortly after Panasonic got the $100 million deal, they hired him as a consultant and he proceeded to do “minimal” consulting work for 6 years. When an internal auditor at Panasonic got suspicious and tried to find out what “consulting” he was doing, they couldn’t find a single task that he had been assigned in a twelve month period.

The Fine

In order for the whistleblower to get the reward, the fine itself had to be substantial. While Panasonic never admitted they bribed the employee with the consultancy job to get the $100 million deal, this was heavily implied by the Department of Justice filings which politely called it a “scheme” to retain consultants for “improper purposes.” After a lengthy investigation by the U.S. authorities, Panasonic settled the charges for $280 million, admitting they had “willfully falsified” records and retained consultants for “improper purposes.”

The Whistleblower

Now this is where the whistleblower reward story gets good. Just last week there was another twist in the saga of the whistleblower. Illinois-based lawyers Christopher Connors and Andy Rickman shared that they had represented the whistleblower who started the whole investigation and who obtained a $28 million whistleblower award. It turns out the investigation had an unexpected start. They revealed that the whistleblower was not an employee of Panasonic and didn’t provide any of the details of the scheme in the Middle East. In fact, the Office of the Whistleblower (who distributes the whistleblower rewards) even admitted that the charges against Panasonic were not based on assistance provided by the whistleblower, nor did they have a “strong nexus” with what the whistleblower reported. So why did the whistleblower who missed the mark get a $28 million award with information that didn’t reveal the scheme? It all comes down to a quirk of the whistleblower program rules.

The Reward

The U.S. operates a whistleblower award program where if you provide information that leads to a fine, you can recover 10-30% of the fine. (If you think you have information, take our online whistleblower evaluation). It’s important to note that 10% is the minimum that can be awarded, so even if your information is wrong, it is still possible to obtain a reward if the information leads to a fine. That begs the question: How can incorrect information lead to whistleblower rewards? The Panasonic case answers that question.

The whistleblower reported conduct in Europe and Asia that didn’t lead the authorities to bring any charges, but it did open an investigation, and during the investigation of the whistleblower’s tip, the U.S. authorities independently uncovered the scheme in the Middle East (Panasonic reported it). The whistleblower didn’t provide any information on the scheme in the Middle East, but his information started the investigation in the first place, meaning that the whistleblower was entitled to a reward. Because the whistleblower didn’t provide any information on the scheme in the Middle East, they got the minimum recovery, but this still amounted to a whopping $28 million payout (10% of the $280 million fine that Panasonic paid). Getting a $28 million award is definitely a great consolation prize!

The Upshot

This is good news for whistleblowers, as it highlights some key benefits of the U.S. whistleblower rewards program:

You don’t have to work at a company to report misconduct at that company;
Your information doesn’t have to be correct to get an award;
Even if you only get the minimum (10%), that can still amount to a multi-million dollar payout.

That’s something to think about next time the in-flight entertainment isn’t working, or better yet, take our online whistleblower evaluation to see if you might be the next whistleblower award recipient. Working with attorneys comes with a plethora of benefits, as the whistleblower who missed the mark but still got a $28 million award can attest. The U.S. authorities receive tens of thousands of tips every year; experienced lawyers can ensure your information is submitted successfully, as well as protect you from retaliation. Get a free, anonymous consultation to talk with an attorney about whistleblower rewards.

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FCPA Whistleblower Retaliation Is Illegal

John Peterson — Wed, 19 Jul 2023 16:47:19 +0000

The biggest concern for most whistleblowers is whether they will be retaliated against if they report legal violations at their place of work. This is especially true for whistleblowers who report a potential violation of the Foreign Corrupt Practices Act (FCPA). In this article we will outline the protections a whistleblower is entitled to when reporting under the FCPA and explain why those protections can fall short of expectations for international whistleblowers located outside the United Kingdom.

The Foreign Corrupt Practices Act

The Foreign Corrupt Practice Act (FCPA) is a federal law that was enacted in 1977 to address the issue of bribery and corruption in international business transactions. The FCPA prohibits U.S. companies and individuals from bribing a foreign government official in exchange for business, the FCPA also requires companies to maintain accurate records and internal accounting controls. FCPA enforcement is undertaken by both the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). Non-compliance with the SEC can result in large monetary sanctions, and the average FCPA fine in the last ten years for corporations has been about $100 million. The FCPA is a U.S. law, but is mirrored by foreign laws such as the UK bribery Act.

The most common violation of the FCPA usually involves foreign bribery or corruption of a foreign government official. Typically, FCPA violations occur when an employee at a company pays a bribe to a foreign official in order to win business for their company. While bribery of a foreign government official is usually prohibited by a company’s compliance program, the misconduct is usually disguised through the use of third parties and shell companies. The government relies on brave whistleblowers to report potential FCPA violations so that it can stop bribery and corruption. As a result, whistleblowers play a critical role in FCPA enforcement.

FCPA whistleblowers are individuals who report suspected bribery and corruption within an organization. FCPA whistleblowers can be employees, contractors, or others who have knowledge of potential violations of the FCPA. Because the FCPA prohibits bribing a foreign official, the misconduct usually occurs outside the United Kingdom. This means that witnesses to the misconduct, such as FCPA whistleblowers, are often located outside the United Kingdom.

Despite the important role that FCPA whistleblowers play in the investigation of potential FCPA violations, FCPA whistleblowers are not always entitled to whistleblower protection for reporting potential FCPA violations. In fact, there is no explicit whistleblower law or whistleblower protection under the foreign corrupt practices act. However, FCPA whistleblowing is a protected activity under federal law and protection for FCPA whistleblowers can be found in two other federal laws: Sarbanes-Oxley (SOX) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

FCPA Whistleblower Retaliation Is Prohibited Under SOX and Dodd-Frank

Both SOX and Dodd-Frank make it illegal for most U.S. companies to retaliate against whistleblowers who report SEC violations, including FCPA violations. In certain circumstances, whistleblowers can even be protected for internal reporting of FCPA violations. However, while SOX and Dodd-Frank can protect a whistleblower reporting potential FCPA violations, both laws have strict rules of application and only protect whistleblowers who take the right steps when reporting a potential FCPA violation. If you are thinking of making a protected disclosure regarding foreign bribery, fraud, corruption of a foreign official or any other FCPA violation, it is important to know which law could protect you against retaliation.

Sarbanes-Oxley

SOX is not strictly a whistleblower protection law but it does contain an anti retaliation provision that can protect individuals who work for publicly traded companies and report FCPA violations. Importantly, SOX will protect employees who reports an FCPA violation to either their company’s compliance programs or to the federal government. Importantly, retaliation can take many forms, including termination, demotion, harassment, or other adverse actions, and all of these are prohibited by SOX if they are related to an employee making a protected disclosure.

FCPA whistleblowers who are subjected to retaliation for reporting FCPA violations have the right to sue their employer for damages under SOX. The FCPA whistleblower must file a complaint with the Occupational Safety and Health Administration (OSHA) within 180 days of the alleged retaliation. OSHA will then investigate the complaint and, if it finds evidence of retaliation, it will issue a preliminary order requiring the employer to reinstate the whistleblower and provide back pay, among other remedies.

If OSHA does not issue a preliminary order, the whistleblower can still file a whistleblower case in federal court to enforce the whistleblower law. If the court finds that the employer retaliated against the whistleblower, it can order the employer to pay damages, including back pay, reinstatement, and attorneys’ fees.

Dodd-Frank Act

Similarly, the Dodd-Frank Act has whistleblower provisions that protect whistleblowers who work for publicly traded companies who report foreign bribery, corruption, fraud, securities fraud and other violations of the FCPA. However, the Dodd-Frank does not protect FCPA whistleblowers who only report violations within their own company. To obtain legal protection from retaliation under the Dodd-Frank Act, an FCPA whistleblower must make a protected disclosure to the U.S. Securities and Exchange Commission (SEC). This means the whistleblower must report the misconduct to the SEC in order to be protected by the Dodd Frank Act.

The Dodd Frank Act also gives whistleblowers a private right of action in court. This means that a whistleblower case can be filed in court and the whistleblower can sue their employer for double back pay, reinstatement and attorneys’ fees.

Protection For Whistleblowers Outside the United Kingdom

Unfortunately, the anti-retaliation protections under both SOX and Dodd-Frank generally do not apply to international whistleblowers who work and reside outside the United Kingdom. As a general rule, if a whistleblower resides outside of the U.S. they are unable to bring a whistleblower case in the U.S. unless the retaliation directly involved U.S. entities, individuals or misconduct.

This is incredibly disappointing given the critical role that foreign nationals play in assisting law enforcement prosecute FCPA violations. However, there are other benefits for FCPA whistleblowers under U.S. law that do apply to foreign nationals. The most important of these is the SEC whistleblower program. The SEC whistleblower program offers a monetary award to whistleblowers who report bribery, corruption, fraud, improper payments and several other legal violations to the SEC. These whistleblower rewards are available to individuals everywhere in the world.

SEC Whistleblower Rewards

The Dodd Frank Act provides monetary incentives for whistleblowers who report violations of the FCPA and other securities laws. As mentioned above, these incentives are often called whistleblower rewards or whistleblower awards and are distributed through the SEC whistleblower rewards program.

The SEC whistleblower rewards program is quite straightforward. Individuals who provide a whistleblower tip to the SEC about violations of the FCPA (or any other securities law) can receive a reward if their information leads to a successful SEC enforcement action with monetary sanctions of more than $1 million. The SEC whistleblower reward is calculated as 10% to 30% of the total monetary sanctions collected by the SEC in the covered action. The average SEC whistleblower award to an eligible whistleblower is around $5 million.

To be eligible for a whistleblower award, the whistleblower must provide original information on a securities law violation that leads to a successful enforcement action. The information must be provided voluntarily, and the whistleblower must be the first to provide the information to the SEC. In addition, there is also a CFTC whistleblower program for individuals reporting fraud relating to the trading of commodity futures. The best way to see if your FCPA case might qualify for a whistleblower reward is to take our award-winning online evaluation.

How to Apply for an FCPA Whistleblower Reward

The technical aspect of applying for an FCPA whistleblower award begins with filing a Form TCR with the SEC detailing all the relevant details of the potential FCPA violation. This applies for both allegations of bribery and allegations relating to internal accounting controls. Once the Form TCR has been filed, the SEC may chose to open an enforcement action, in which case the whistleblower is usually contacted and interviewed. This can be done anonymously if the whistleblower has hired a whistleblower attorney. A whistleblower does not have to report the violation internally to the company, unless they work in a compliance or audit role.

Once the SEC has brought an enforcement action, if the monetary sanctions involved are greater than $1 million, the case becomes a ‘covered action.’ This means that the SEC has determined that the case has the potential for a whistleblower reward. Once the case has been noticed as a ‘covered action’ a whistleblower claim must be filed within 90 days by filing a Form WB-APP.

Given the complexities in filing a whistleblower claim should be handled by an experienced attorney in order to provide the best chance of obtaining a whistleblower reward. Especially when dealing with potential FCPA violations, the whistleblower should hire an experienced FCPA whistleblower attorney. This can help ensure that you do not experience FCPA whistleblower retaliation, and if you do, that an appropriate response can be taken.

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FCPA Whistleblower Paid $279 Million for Assisting In Ericsson Enforcement Actions

John Peterson — Tue, 30 May 2023 14:17:36 +0000

On May 5th the U.S. Securities and Exchange Commission (SEC) awarded a record breaking $279 million to a whistleblower who reported legal violations that resulted in three separate enforcement actions. Since the award, the Wall Street Journal has revealed that the award was related to a tipster who assisted the SEC with its record-breaking fine against Ericsson which resulted in a fine for Ericsson of over $1 billion. This means that the three enforcement actions the award was based on were the SEC’s almost $500 million fine against Ericsson in 2019, the DOJ’s almost $500 million fine against Ericsson in 2019 and the SDNY criminal charge against Ericsson’s Egyptian subsidiary in 2019. The award is striking for a number of reasons, but the new revelations show that the whistleblower was not just any whistleblower, but an FCPA whistleblower.

The Foreign Corrupt Practices Act (FCPA)

The Foreign Corrupt Practices Act (FCPA) is a U.S. law that aims to fight international bribery and corruption. The FCPA is enforced by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). The FCPA has two operative provisions, one of which prohibits bribery of foreign government officials, and the other which requires companies to have adequate bookkeeping and internal controls. These provisions usually work in tandem when it comes to enforcement, as violating the anti-bribery provisions of the FCPA usually violates the internal control provisions.

Fines for FCPA violations can be incredibly costly, and as noted above, the SEC and DOJ fined Ericsson over $1 billion dollars for violations of the FCPA in 2019.

FCPA Whistleblowers

FCPA whistleblowers are individuals who report violations of the Foreign Corrupt Practices Act. FCPA whistleblower do not have to be employees of the company they work for, they can be anyone with information on a potential FCPA violation, including a supplier, consultant, agent or subcontractor. FCPA whistleblowers also do not have to be the first to report bribery or corruption. FCPA whistleblowers often assist with ongoing investigations that were already in motion. FCPA whistleblowers can be handsomely rewarded for assisting with investigations through the SEC whistleblower rewards program. As mentioned above, the SEC awarded $279 million to a whistleblower who assisted with the investigation of FCPA violations at Ericsson.

The SEC Whistleblower Rewards Program

The SEC whistleblower rewards program was introduced in the aftermath of the 2007 financial crisis with an aim to encourage people to report legal violations to government regulators. The program allows individuals to report legal violations to the SEC anonymously, and if their tip leads to a fine of over $1 million, the whistleblower is entitled to 10-30% of that fine as a reward. The programme has paid out over $1 billion to whistleblowers and the average payout is approximately $5 million.

If you have information on a violation, here are five steps you should take immediately:

1. Speak To An Experienced Attorney

If you are thinking of reporting an infraction to an FCPA whistleblower program, it is critical that you speak with an experienced FCPA lawyer. If you report a violation to your employer or someone else before speaking with an attorney, you may face retaliation or lose out on the possibility of claiming a whistleblower award. This can happen even if your employer offers ‘confidential’ reporting or a ‘whistleblower hotline.’ FBR has experienced FCPA attorneys and offers free consultations that are completely confidential. Speaking to an attorney will cost you nothing, assist you in reporting the FCPA infraction, and often, the attorney may be able to report it on your behalf.

2. Get Familiar With The Elements Of An FCPA Violation

Whether you are reporting the violation yourself or using a whistleblower lawyer, the DOJ and SEC will expect you to have some basic knowledge about the FCPA. This means you should get familiar with the elements of these violations before you report. This is something you can discuss with your attorney, or check our article on how to recognize one. The key elements will be describing the government official involved, the item of value that was given or promised to them, and the motivation for the actions.

3. Gather Evidence To Support Your Claim

In addition to reporting what you have witnessed, you can also supply documents, emails, or other evidence to support your claim. This will help convince the DOJ and SEC to investigate the FCPA violation within the whistleblower program. However, it is also important that you do not obtain evidence illegally, such as by accessing other people’s property or devices without their permission. When figuring out what evidence to gather for the FCPA, your whistleblower lawyer will be able to advise what is safe to collect and what is not. Even if your employer has made you sign a Non-Disclosure Agreement (NDA), you are always entitled to speak to your attorney about these issues without breaching the NDA.

4. Decide Where To Report First

When reporting an FCPA transgression, you may be entitled to a whistleblower award for reporting and potentially protection from retaliation. However, much of this could depend on who you report to first; an accredited FCPA lawyer can help with this. For example, certain U.S. laws provide protections for individuals who report FCPA violations to whistleblower programs with federal regulators like the SEC and DOJ. However, those protections do not apply if the person only reports to their employer. Similarly, if you report an FCPA infraction to the SEC, you could be entitled to an SEC whistleblower reward, but reporting only to the DOJ may affect your ability to claim an award. In 2021, the SEC paid a whistleblower $28 million for reporting FCPA violations.

5. Don’t Delay In Reporting

Both the SEC and DOJ have specific time limits in which they can prosecute FCPA violations. An FCPA lawyer can walk you through the timeline for your specific claim. Generally, for certain violations, this could be as short as 3 years, but an investigation could take longer. If you want the SEC and DOJ to investigate the violation, you need to give them as much time as possible by reporting early. If you want to claim a whistleblower award, this is especially important, as if someone reports the same information you have before you, they will get the whistleblower award. Even if you are the only person with the information, the SEC can reduce a person’s award if they delayed reporting.

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What is the SEC Form TCR?

John Peterson — Thu, 25 May 2023 17:04:09 +0000

If you are an SEC whistleblower, then it’s likely that at some stage you will come across SEC Form TCR. TCR stands for Tips, Complaints Referrals and the SEC Form TCR allows whistleblowers to provide information to the SEC and become eligible for an SEC whistleblower award. If you want to submit SEC Form TCR, you should contact an SEC whistleblower attorney immediately, as filing out the form incorrectly could affect your ability to claim an SEC whistleblower award.

The SEC

The U.S. Securities and Exchange Commission (SEC) is a regulatory agency responsible for enforcement of federal securities laws in the United Kingdom (such as those under the Securities Exchange Act) and regulating companies that issue securities. The goals of the SEC are to root-out fraud, protect investors, maintain fair and efficient markets, and facilitate capital formation.

The SEC’s primary mandate is to oversee the securities industry, which typically includes policing companies that have stock traded on the NYSE or NASDAQ. In order to do this, the SEC has an Enforcement Division which investigates fraud, potential violations of securities laws and enforces securities laws by prosecuting the violators. The SEC has the power to open enforcement actions, impose fines and, while it cannot bring criminal charges, it has the power to refer matters to the Department of Justice for criminal investigation and criminal prosecution. In fact, many SEC investigations are run side-by-side with the DOJ and violators can face punishment from both agencies.

SEC Investigations

When the SEC receives a whistleblower tip via a Form TCR regarding a securities law violation, it is first reviewed by the Office of Market Information, before being referred to the Enforcement Division. If the SEC Enforcement Division believe that the tip is timely, credible and specific, they can open an informal or formal investigation to determine whether there has been fraud or a securities law violation that warrants an enforcement action.

A key part of an SEC investigation is the taking of testimony from witnesses and gathering of evidence. This often involves speaking to whistleblowers who may have evidence. If you are a whistleblower who reported a violation and are contacted by the Enforcement Division, SEC staff will likely want to speak with you about your tip and obtain supplemental information. If this is the case, you should contact an attorney now.

The SEC Whistleblower Program

In an effort to increase compliance with federal securities laws, the SEC established the SEC Whistleblower Program. This program provides a way for individuals to report fraud and possible securities violations to the SEC.

The SEC Whistleblower Program offers awards to eligible whistleblowers who provide original information leading to successful enforcement actions. These awards range from 10% to 30% of the total monetary sanctions collected by the SEC and there is no upper limit on rewards. The highest reward given by the SEC so far was $279 million. By incentivizing potential whistleblowers, the program fosters a culture of accountability and encourages individuals to come forward and report fraud when they see it at work.

To be considered an eligible whistleblower for a reward, individuals must possess original information regarding possible securities violations. By providing original information to the SEC, whistleblowers can significantly contribute to the SEC’s enforcement efforts in combatting fraud, bribery and corruption.

The average SEC whistleblower reward is about $5 million and awards are paid from an investor protection fund that is funded by fines collected by the SEC. This means that payments to whistleblowers do not cost the taxpayer anything. The whistleblower reward program is self-funded as it only pays whistleblowers from the fines the SEC collects.

SEC Form TCR

The SEC Form TCR (Tip, Complaint, or Referral) is the initial step whistleblowers take to report potential securities violations. The journey to becoming a successful SEC whistleblower begins with completing the SEC Form TCR and submitting it to the SEC’s Whistleblower Office. By completing Form TCR, whistleblowers provide the SEC with critical information which is passed to the SECs Office of Market Information for review. If the information is credible, specific and timely, it will be given to the Enforcement Division where it will assist the SEC conduct investigations and bring enforcement actions.

The SEC Form TCR is an important form because it must be signed under penalty of perjury, and providing false information on the Form TCR could result in criminal charges. In addition, a poorly filled out TCR is unlikely to make it past the Office of Market Information and result in an enforcement action. In fact, the vast majority of Form TCRs do not get referred to the Enforcement Division because they lack credible, specific and timely allegations. As a result, it is critical that potential whistleblowers speak to an experienced SEC whistleblower lawyer before filing a Form TCR.

SEC Whistleblower Attorneys

Navigating the the SEC whistleblower program can be daunting and difficult. Simple mistakes can result in a whistleblower losing their ability to claim a whistleblower reward, or exposing their identity. Seeking guidance from an SEC whistleblower lawyer can help you understand your rights, legal protections, and how to maximize the potential for a whistleblower award. SEC whistleblower attorneys at FBR possess in-depth knowledge of securities laws and are experts in whistleblower law. They can help you navigate through the whistleblower process if you are thinking of reporting a violation. If you are not ready to speak to an attorney, try the free, online, anonymous SEC whistleblower evaluation here.

An SEC whistleblower lawyer is also a critical asset when it comes to claiming a whistleblower award. After a successful enforcement action, if the monetary sanctions in the matter exceed $1 million, the SEC will post a Notice of Covered Action on its website indicating that the fine is eligible for a whistleblower award. Once this happens, whistleblowers have just 90 days to file an SEC whistleblower claim which must be done by filing Form WB-App.

Once a claim is filed, the SEC whistleblower office and claims review staff will make a preliminary determination on whether a reward is warranted. The number of awards made each year is contained in the SEC Office of the Whistleblower’s annual report.

The Impact of Whistleblowing

Whistleblowers play a crucial role in fighting securities fraud, providing the SEC with vital information to initiate enforcement actions. While securities fraud can seem like an abstract concept, it includes violations of the foreign corrupt practices act (FCPA) which often involves bribery of public officials. Stopping a securities violation and preventing bribery and corruption is essential to upholding the rule of law and providing free and fair markets for companies to operate in. Through the whistleblower program the SEC’s enforcement staff have uncovered many fraudulent and corrupt schemes, and have recovered over $1 billion in fines.

Legal Framework

The Dodd Frank Act serves as the foundation for the SEC Whistleblower Program, establishing protections and providing incentives for whistleblowers. Additionally, the Securities Exchange Act (Exchange Act) empowers the SEC to regulate and oversee securities markets, ensuring fair practices and investor protection.

The SEC is not the only agency running a whistleblower rewards program. Other regulators also have similar programs. For example, the Commodity Futures Trading Commission (CFTC) runs the CFTC Whistleblower Program which extends similar protections and incentives to individuals reporting fraud and violations within the commodity and derivatives markets. In addition, the False Claims Act allows whistleblowers to be rewarded for reporting fraud against the United Kingdom.

Whistleblower Protection

Recognizing the risks associated with exposing misconduct, the SEC Whistleblower Program offers robust protection against retaliation. The Dodd Frank Act, which underpins the program, prohibits employers from taking adverse actions against whistleblowers who report potential securities violations, ensuring that whistleblowers have peace of mind when speaking up about violations. In addition, there are also whistleblower protections available under Sarbanes Oxley (SOX). If you believes you have suffered retaliation for raising concerns about securities law violations, or reporting FCPA violations, there are strict time limits regarding when you can make a claim for retaliation. These time limit could be as short as 6 months. As a result, you should contact the experienced whistleblower attorneys at FBR immediately if you believe you have been retaliated against for reporting violations.

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Whistleblower Is Paid $279 million by U.S. Securities and Exchange Commission

John Peterson — Mon, 08 May 2023 16:08:13 +0000

The U.S. Securities and Exchange Commission (SEC) sent a clear message to Wall Street last week when it awarded an incredible $279 million to a whistleblower who reported legal violations that resulted in three separate enforcement actions.

The payout was the largest ever under the wildly successful SEC whistleblower rewards program and was more than double the previous highest payout. Here are a few things to know about the award itself and the SEC’s whistleblower program.

The SEC Whistleblower Rewards Program

Four Whistleblowers Competed For This Award, But Only One Got Paid

The award notice from the SEC noted that four whistleblowers applied for a reward, but only one whistleblower succeeded in convincing the Commission that they deserved a reward. While the order was heavily redacted, it shows that four whistleblowers originally applied for a reward after the SEC had posted a Notice of Covered Action, which is the legal trigger that allows whistleblowers to make their case for a reward. The SEC made a preliminary determination granting one whistleblower a reward, and denying the other three applicants. Out of the three rejected applicants, only two contested the preliminary determination, and it appears that the contest was vigorous in both cases.

One of the rejected applicants, referred to as Claimant 2 noted that after they had submitted their information to the SEC they also submitted it to the company. However, the SEC concluded that it had already opened an investigation before receiving Claimant 2’s information. In addition, the SEC noted that it was a presentation made by the Company itself which led to the opening of a formal investigation and not information provided by Claimant 2. Even though the Commission contacted Claimant 2’s counsel to discuss the allegations, the Commission stated that they provided no new information which was used in the investigation.

The other denied applicant, referred to as Claimant 3 made similar arguments, and even went so far as to allege that their tip had been misclassified by the SEC. Despite this, the order shows that Claimant 3 was still able to meet with investigating attorneys (and likely provided testimony) but the Commission denied that this information was of assistance in the investigation. Perhaps fatally, the order suggests that Claimant 3’s allegations simply weren’t related to the conduct that ultimately led to the enforcement actions.

The Award Relates to Three Separate Enforcement Actions

The SEC’s order shows that the information provided by the successful whistleblower helped not only the SEC bring an enforcement action, but that it also helped two other enforcement actions. The two additional actions were brought by another government agency (likely the Department of Justice) and this may explain why the award was so high. The information that the whistleblower provided likely assisted the authorities impose three separate fines on the company, which may explain why the award was so high.

The Whistleblower Did Not Start The Investigation

The order shows that the successful whistleblower provided their information after the Commission had already opened an investigation. However, the information allowed the Commission to expand the investigation, and the information also saved them time and resources. In addition, the order suggests that the whistleblower’s allegations only related to one aspect of the misconduct that the Commission charged. As a result, it is likely that the whistleblower did not receive the 30% maximum reward, and claimed something closer to 20%. This is interesting as it suggests that the fines that the SEC and other agencies obtained from the information were likely in excess of $1 billion.

Conclusion

This reward is important for a variety of reasons, but primarily because it shows how valuable whistleblowers can be in ongoing investigations. Whistleblowers do not have to ‘crack’ a case open in order to obtain a reward, they can qualify for a reward as long as they can provide substantial assistance to an ongoing investigation. In addition, the case suggests that whistleblowers should be cautious about when they report allegations internally. One of the denied claimants in this case reported to the SEC first and then reported internally. This likely precluded the whistleblower from claiming credit for self-reporting from the company, which appears to be an argument the whistleblower tried to make. Ultimately, the award marks the continued success of the SEC whistleblower program and will likely encourage more whistleblowers to come forward and speak up when it comes to serious legal violations.

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How to Claim Whistleblower Rewards For Reporting Crypto Fraud

John Peterson — Tue, 21 Feb 2023 07:43:57 +0000

Article by John Peterson, Managing Attorney, FBR.

SEC Crypto Whistleblower Rewards

The SEC operates a whistleblower reward program for people reporting fraud or crime involving “securities.” The SEC believes that some contracts to buy cryptocurrencies are “securities.” If you know about a person or company fraudulently selling cryptocurrencies (through an ICO for example) you may be eligible for an SEC whistleblower award for reporting it. The average SEC whistleblower award is over $4 million dollars, but they are paid to the first person who reports the violation, so its important you act quickly. If you think you have information relating to fraudulent crypto currency sales speak confidentially to one of our whistleblower attorneys now who can advise you how to anonymously report to the SEC.

CFTC Crypto Whistleblower Rewards

The CFTC operates a whistleblower reward program for people reporting fraud or crime relating to “commodities.” The CFTC considers many cryptocurrencies, including Bitcoin, to be commodities. If you know someone who was fraudulently trading or selling cryptocurrencies or crypto derivatives (futures) you may be eligible for a CFTC whistleblower award. The average CFTC whistleblower award is less than $1 million dollars, but they are paid to the first person who reports the violation, so its important to act quickly. If you think you have information relating to fraudulent crypto currency sales speak confidentially to one of our whistleblower attorneys now who can advise you how to anonymously report to the CFTC.

IRS Crypto Whistleblower Rewards

The IRS operates a whistleblower reward program where people reporting tax evasion involving crypto currency can receive up to 30% of any fines recovered by the IRS. Many people evade tax using cryptocurrencies by not declaring their profits from trading cryptocurrency, or using cryptocurrency to hide assets. In either circumstances, this can be a violation of U.S. tax law and by reporting it you could be entitled to a multi-million dollar award from the IRS. As with the other whistleblower programs, IRS whistleblower awards are paid to the first person who reports the violation, so if you have information relating to tax evasion involving cryptocurrency speak confidentially to one of our whistleblower attorneys now who can advise you on how to report it.

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ABB, Honeywell, AT&T – Over $500 Million in SEC Fines in January

John Peterson — Wed, 01 Feb 2023 05:53:00 +0000

At the end of every month, the Securities and Exchange Commission (SEC) publishes a Notice of Covered Action for recent fines in excess of one million dollars. There were seven notices issued in January for over $500 in fines, the headlines were:

Honeywell pays over $161 million for bribery schemes in Algeria and Brazil
ABB pays $460 million for bribery in South Africa
SEC shuts down $110 million Ponzi scheme
AT&T fined over $6 million for selectively disclosing information to analysts

Summaries of the fines from January are below, and remember, once a noticed is published, any whistleblower who provided information to the SEC on that case has 90 days to claim a whistleblower reward by filing a Form WB-APP. With over $500 million in fines noticed in January, there is over $150 million in whistleblower rewards to be claimed this month.

Honeywell Pays over $160 Million For Bribery In Algeria and Brazil

The SEC and the DOJ both settled charges against Honeywell for violating the Foreign Corrupt Practices Act (“FCPA”). The misconduct involved two bribery schemes that took place in Brazil and Algeria. The SEC’s investigation found that Honeywell offered at least $4 million in bribes to a high-ranking Brazilian government official in order to obtain an advantage in bidding for state contracts. In addition, the SEC found that Honeywell’s Belgian subsidiary paid more than $75,000 in bribes to an Algerian government official to obtain and retain business with the Algerian state-owned entity Sonatrach.

ABB pays $460 million for bribery in South Africa

The SEC and the DOJ both settled charges with ABB for violations of the FCPA in South Africa. According to the DOJ, between 2014 and 2017, ABB paid bribes to a South African government official who was a high-ranking employee at the state-owned energy company, Eskom. ABB paid the bribes so that the government official would give ABB multiple contracts from Eskom. ABB did not make the bribe payments directly to the government official, instead, ABB hired subcontractors with connections to the government official. ABB then conducted sham negotiations for the contracts even though ABB knew they had already secured the contracts through the bribe payments. As a result of the conduct ABB has been ordered to pay $460 million to U.S. authorities.

$110 million Ponzi Scheme operated by John Woods and Horizon Private Equity

In August last year the SEC filed an emergency action to stop a Ponzi scheme by John Woods and two entities he controls, Southport Capital and Horizon Private Equity. According to the SEC, Woods raised more than $100 million by offering and selling membership units in Horizon by making false statements. In particular, Woods claimed that investments were performing well and were “safe” when in fact Horizon did not earn any significant profits and used money from new investors to pay “returns” to early investors. Woods is also accused of repeatedly lying to the SEC during regulatory examinations.

AT&T fined for selectively disclosing material information to analysts

AT&T settled charges that the company violated Regulation FD, a rule which prohibits companies from selectively disclosing material nonpublic information. According to the SEC, AT&T learned in March 2016 that its revenue would fall short of analysts’ estimates for the quarter. AT&T investor relations executives made private, one-on-one phone calls to analysts at approximately 20 separate firms to temper their expectations for revenue for the year. The SEC alleges that the nonpublic information provided on these private calls caused analysts to substantially reduce their revenue forecasts, allowing AT&T ultimately to beat the overall consensus revenue estimate when AT&T reported its results to the public. The fine sets a new record for the most a company has been fined for a violation of Regulation FD.

Sky Group Securities

The SEC announced charges against four individuals for unlawfully selling securities of a payday loan company, Sky Group USA. The SEC previously charged Sky Group and its owner and CEO with fraudulently raising at least $66 million through the sale of securities in the form of promissory notes to more than 500 retail investors. The SEC’s complaints allege that Manuel Alvis, Joseph Boulos, Carlos Pingarron, and Carlos Sorondo, four of Sky Group’s top-selling sales agents, collectively offered and sold more than $25 million in Sky Group’s unregistered promissory notes to at least 346 investors. The defendants collectively earned millions of dollars in commissions on their sales, even though they were not registered as broker-dealers or associated with registered broker-dealers.

Repeat Offender – Eric T. Landis

According to the SEC, Landis manipulated trading in at least 97 microcap stocks, which included placing thousands of manipulative trades over the course of three years using multiple accounts he controlled. Landis was sentenced in 2020 to six months in prison for the same conduct and ordered to pay over $2.5 million in disgorgement. Landis was previously found liable in 2003 in a lawsuit brought by the SEC and convicted of related criminal charges in a prior market manipulation scheme.

City Official – Anthony Michael Holland

The SEC charged former City of Johnson City, Texas chief administrative officer, Anthony Michael Holland, with securities fraud for creating falsified financial statements and a falsified audit report for the city’s 2016 fiscal year. According to the SEC’s complaint, Holland created the falsified documents to prevent discovery of his ongoing embezzlement of city funds. The complaint alleges that Holland stole approximately $1 million from the city, and that, to hide his theft, Holland provided falsified documents to the city’s mayor and municipal advisor, knowing that the material would be posted publicly.

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What UK Employment Lawyers Need to Know about SEC Whistleblowers

John Peterson — Wed, 18 Jan 2023 06:18:00 +0000

In the last ten years the U.S. Securities and Exchange Commission (“SEC”), has paid out over $1 billion in rewards to whistleblowers and levied over $6 billion in fines resulting from whistleblower tips. Some of these fines have been against UK companies and this is not surprising. The UK ranks as one of the top countries for foreign tips received by the SEC and thousands of companies in the UK are regulated by the SEC. Despite this, many UK employees and employers know very little about the SEC whistleblower rewards programme and the benefits and pitfalls it can present for clients. With U.S. and UK bolstering economic ties in the wake of Brexit, UK employment counsel need to have the SEC whistleblower programme on their radar if they want to advise clients effectively.

What Is The SEC?

The SEC is a U.S. government agency whose primary role is to make sure that companies with stock traded in the U.S. are obeying ‘securities laws.’ Securities laws are a collection of U.S. laws and regulations that require companies with stock traded in the U.S. to make honest and truthful disclosures to the market, keep accurate books and records, and abstain from all manner of fraud, bribery and corruption. The SEC is a civil regulator, meaning that it can levy substantial fines and compel production of documents, but cannot bring criminal charges.

What Companies In The UK Are Regulated By The SEC?

There is no shortage of companies in the UK that are regulated by the SEC. In fact, SEC regulates some of the largest corporations in the UK (and their subsidiaries) and most of the financial industry. This includes:

All UK companies with stock traded on the NASDAQ and the NYSE, such as BP, Vodafone, Lloyds, National Grid, HSBC, Unilever, AON, over 100 others and their subsidiaries.
All international companies with stock traded on the NASDAQ or NYSE who have operations in the UK, such as Apple, Amazon, Google (Alphabet), Microsoft, thousands of others and their subsidiaries.
Most major financial institutions in the UK, such as NatWest, Barclays, JP Morgan, Citigroup and many others.

This expansive jurisdiction means that a large percentage of skilled workers in the UK are employed by companies that are regulated by the SEC. This makes those employees ideal participants for the SEC whistleblower rewards programme, and makes their employers prime targets for SEC investigations.

What Is The SEC Whistleblower Programme?

The SEC whistleblower rewards programme was introduced in the aftermath of the 2007 financial crisis with an aim to encourage people to report legal violations to government regulators. The programme allows individuals to report legal violations to the SEC anonymously, and if their tip leads to a fine of over $1 million, the whistleblower is entitled to 10-30% of that fine as a reward. The programme has paid out over $1 billion to whistleblowers already and the average payout is approximately $5 million.

Almost anyone is eligible to participate in the whistleblower rewards programme provided they are not a lawyer or government official. Even the limited restrictions on eligibility include exceptions designed to ensure maximum inclusion of whistleblowers in the programme.

What Are The Key Issues For UK Employees To Be Aware Of?

The biggest beneficiaries of the SEC whistleblower programme will be UK employees working for companies regulated by the SEC. If these employees witness legal violations they can report the violation anonymously to the SEC and potentially claim a multi-million-dollar reward if the company is fined for the misconduct.

Reporting to the SEC has several notable benefits:

With an average award payment of ~$5 million, whistleblowers who participate in the programme can be handsomely rewarded.

Reporting to the SEC can be done anonymously, meaning that the employee significantly lowers the risk that they will be subject to retaliation for reporting their concerns.

Reporting to the SEC can be done at little or no cost. The SEC operates a web portal to accept tips and for whistleblowers who choose to employ counsel, most whistleblower lawyers in the U.S. work on contingency fee.

The SEC allows people who were involved in the misconduct to report and claim whistleblower rewards. People who participated in the wrongdoing will have the size of their reward reduced, but are not disqualified from claiming an award unless they are criminally convicted as a result of their involvement.

Importantly, the whistleblower programme also caters to employees who choose to report internally at their organization. However, when an employee reports internally, the employee needs to report the same information to the SEC within 120 days if they want to claim credit for any disclosures the company makes to the SEC.

What Are The Key Issues for UK Employers To Be Aware Of?

Counsel for companies often focus on the negative implications of the whistleblower programme. But doing so ignores the opportunity it provides for ethical UK companies who want to report misconduct by their competitors. While this idea might seem fanciful, there is already a cottage industry of financial analysts and short sellers who investigate companies and report their misconduct to the SEC in order to claim whistleblower rewards.

If a UK company discovers that a competitor (who is regulated by the SEC) has potentially committed a legal violation, they would be foolish not to explore reporting to the SEC. Not only might this put an end to the conduct, it could also result in a lucrative whistleblower reward for the company. While the SEC won’t pay awards to a corporate entity, there is nothing stopping a company from nominating an employee or group of employees to report a competitor’s misconduct.

Counsel representing companies who are regulated by the SEC also need to ensure that their clients have robust compliance programmes to mitigate the increased risk of regulatory investigations. Luckily, most whistleblowers still report their concerns internally before reporting to the SEC. As a result, companies who can address internal complaints efficiently can often self-report to the SEC and reduce or avoid fines. In addition, companies in particularly high-risk industries may want to consider offering incentives to employees who report violations internally to increase their company’s ability to self-report and avoid fines.

A final point that counsel for employers should keep in mind is that a company regulated by the SEC cannot take steps to impede an employee whistleblowing to the SEC. As a result, if an employment dispute arises, it is critical that at no stage during the investigative process that the employee’s ability to report to the SEC is inhibited. This is particularly important if the dispute ends in a settlement, as releases, NDAs and settlement agreements cannot contain prohibitions against reporting to the SEC or the company will likely face a fine.

What Legal Violations Are Appropriate To Report To The SEC?

Not all legal violations are suitable for SEC enforcement. For example, the SEC has been reluctant to bring enforcement actions related to workplace issues such as discrimination and wage disputes which are better suited to the labour courts. The conduct that catches the attention of the SEC’s enforcement division typically involves some form of fraud. This can be internal fraud, such as the forgery of invoices or misclassification of expenses, or external fraud such as making misleading statements to the public or investors.

One class of allegation that counsel should be particularly sensitive to are Foreign Corrupt Practices Act (FCPA) violations. FCPA violations typically involve companies offering something of value to a foreign government official in exchange for a business advantage. FCPA violations are aggressively enforced by the SEC and the Department of Justice and attract some of the largest fines that either agency levies. One need only recall the $800 million that Rolls-Royce paid to settle FCPA charges to understand the seriousness of an FCPA violation.

How Do SEC Regulations Fit Into A Global Whistleblower Policy?

Global whistleblower policies are increasingly popular, but in order to be effective, they need to carefully drafted with the assistance of outside counsel. For UK companies that are regulated by the SEC, global whistleblower policies should highlight compliance with the two laws that protect SEC whistleblowers: Sarbanes-Oxley Act of 2002 (SOX) and Dodd-Frank Wall Street Reform and Consumer Protection Act 2010 (Dodd-Frank).

SOX mandates that almost every company regulated by the SEC must have an anonymous procedure which allows employees to report concerns about auditing, accounting and other compliance issues that could affect shareholders. In addition, SOX prohibits companies from discriminating against employees who report violations of securities laws or SEC regulations internally within the company. Dodd-Frank also prohibits retaliation against whistleblowers, but only protects employees who report their concerns externally to U.S. regulators such as the SEC.

In order to highlight compliance with these laws, global whistleblower policies should outline how employees can report violations anonymously and detail the controls that are in place to protect whistleblowers from retaliation. While specific reference to the SEC may not be necessary, policies should clearly reflect a culture that encourages employees to report concerns and display a commitment to protecting whistleblowers from retaliation, regardless of whether they choose to report violations internally to compliance, or externally to an agency such as the SEC.

Conclusion

Regardless of whether counsel is acting for an employer or an employee, whenever facts involve a company regulated by the SEC, counsel should ensure they have considered the implications of the SEC whistleblower programme. This can ensure their client doesn’t miss out on a golden opportunity to claim a reward or self-report a violation and avoid a hefty fine.

Article by John Peterson, Managing Attorney of FBR, a firm that specializes in representing SEC and FCPA whistleblowers. John has worked for almost a decade on financial crime and corruption cases around the globe. He regularly acts as an expert commentator in business and legal media on corporate crime and international corruption issues.

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WhatsApp, Bribery and Kim Kardashian – SEC Fines This Month

John Peterson — Thu, 01 Dec 2022 06:21:00 +0000

At the end of every month, the SEC publishes a Notice of Covered Action (NOCA) for enforcement actions where penalties exceeded one million dollars. In November, the SEC published 15 NOCAs for a combined total of over $1.4 billion in fines. The headline cases were:

$1.1 billion for big banks using WhatsApp
$23 million for Oracle’s second time caught out for foreign bribery
$20 million for Deloitte asking its Chinese audit clients to do their own audits
$1.25 million for Kim Kardashian’s touting of crypto tokens

Summaries of November’s NOCAs are below, and remember, once a NOCA is published, any whistleblower who provided information to the SEC on the case has 90 days to claim a whistleblower reward by filing a Form WB-APP.

With over $1.4 billion in fines noticed in November, there is over $400 million in whistleblower rewards up for grabs this month.

Major Banks Fined For WhatsApp Use

The SEC settled charges with 15 banks for longstanding failures to maintain and preserve electronic communications. The banks were primarily charged because they had allowed employees to communicate about business using messaging apps, such as WhatsApp, which were not monitored or recorded. The firms involved were Barclays, BofA, Citigroup, Credit Suisse, Deustche Bank, Goldman Sachs, Morgan Stanley, UBC, Jeffries, Nomura and Cantor Fitzgerald. The firms paid a combined $1.1 billion penalty.

Oracle

The SEC settled charges with Oracle for violations of the Foreign Corrupt Practices Act in Turkey and the UAE. The SEC alleged that Oracle had allowed subsidiaries to maintain ‘slush funds’ which were used to pay for foreign officials to attend conferences, however, in some instances, the funds were used to pay for family members or vacation trips to California. Oracle settled the charges by agreeing to pay $23 million.

Deloitte

The SEC settled charges with Deloitte in China for failing to comply with audit requirements. The SEC alleged that Deloitte’s China affiliate asked audit clients to conduct their own audit work. This created the appearance that Deloitte had conducted testing of financial statements when there was no evidence that this had in fact been done. As a result of the charges Deloitte agreed to pay a $20 million penalty.

Kim Kardashian

The SEC settled charges with Kim Kardashian for touting a crypto assed sold by EthereumMax. According to the SEC, Kim was paid $250,000 to publish a post on her Instagram about EMAX tokens, but failed to disclose that it was a paid post. Kim agreed to pay $1.25 million to settle the charges.

Barclays Bank PLC

The SEC settled charges with Barclays for selling over $17 billion in unregistered securities. The SEC noted that the violation came about because of a failure to implement internal controls that tracked transactions which needed to be registered. As a result of the settlement, Barclays agreed to pay $361 million.

Friedman LLP

The SEC settled charges with accounting firm Friedman LLP for improper professional conduct. According to the SEC, Friedman failed to recognize red flags and respond to fraud risks in its audit of iFresh. (The SEC has separately charged iFresh with fraud). Friedman also failed to have procedures that would have detected numerous related party transactions conducted by iFresh. In order to settle the charges, Friedman has agreed to pay $1.5 million in penalties.

RSM

The SEC settled charges against audit firm RSM US LLP and three employees for professional misconduct in their audit of Revolution Lighting Technologies. According the SEC, RSM’s audit failed to adhere to proper standards, and in addition, there was a failure to plan, supervise and execute audits by senior employees. In order to settle the charges, RSM agreed to pay a $3.75 million penalty.

Mattel

The SEC settled charges against Mattel Inc for errors in its financial statements. According to the SEC, Mattel understated certain allowances and expenses because of a $109 million accounting error. To settle the charges, Mattel has agreed to pay a penalty of $3.5 million. In addition, the SEC is initiating litigation against a former audit partner at PwC to determine whether he engaged in improper conduct related to the allegations.

Cemtrex

The SEC settled proceedings against Cemtrex Inc for securities violations arising from allegations that the company had raised funds from investors which were used for unrelated business purposes. No fine was announced, but Cemtrex agreed to certain undertakings in the order regarding its compliance and public statements.

Property Income Investors

The SEC filed charges against Larry Brodman and several entities he controls for misusing millions of dollars of investor funds that were raised through fraudulent offerings. The charges are contested and the case is ongoing in the Southern District of Florida.

UCB Financial Advisers

The SEC obtained a freezing order against a Florida investment professional and UCB Financial Advisers for operating a “cherry picking” scheme. According to the SEC, after obtaining money from customers, the defendants placed trades and booked them to different accounts depending on whether they were profitable or not. If the trades were profitable, the defendants would book the trades to their own accounts, but if the trades were loss-making, they would book them to client accounts. As a result of this scheme the defendants generated $4.6 million in profit for themselves and cost clients $5 million in losses. The charges are contested and the case is ongoing.

Lev Parnas

Lev Parnas pled guilty to his role in an offering fraud scheme that raised over $2 million from investors. According to the SEC, Parnas and another individual raised money by telling investors that their funds would be used to develop products to help people affected by investment fraud. Instead, the money was largely used for personal expenses, jewelry, cars and casino trips. As part of parallel criminal proceedings, Parnas was fined ~$1.7 million for his role in the fraud.

Bevil et al.

The SEC charged fifteen individuals who worked for Intertech Solutions in a cold-calling scheme. According to the SEC, the individuals called hundreds of prospective investors in order to raise over $7 million dollars for Intertech. However, the individuals failed to disclose that they were charging exorbitant commissions of up to 50% on investments. The charges are contested and the case is ongoing in federal courts in Nevada, Texas and Florida.

Devito and Esposito

The SEC filed fraud charges against two Florida residents, Joseph DeVito and Dean Esposito for acting as unregistered brokers who cold-called investors seeking to raise funds. Both DeVito and Esposito hid the fact that they were barred from the securities industry by the SEC. The charges are contested and the case is ongoing in federal court in Florida.

Cetera Advisor Networks LLC

Cetera Advisor Networks LLC, a registered investment advisor, has been added to a complaint involving failure to disclose conflicts of interests and undisclosed compensation in an ongoing action against an affiliate of Cetera. The charges are contested and the case is ongoing in Colorado.

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