Foreign Whistleblower Cashes in on Report to SEC

| Zuckerman Spaeder Team

On September 22, the Securities and Exchange Commission announced its largest award to date under its whistleblower program: $30 million.  The SEC said that the whistleblower, who lives in a foreign country, came to it with valuable information about a “difficult to detect” fraud. 

In the order determining the award (which is heavily redacted to protect the identity of the whistleblower), the SEC commented that the claimant’s “delay in reporting the violations” was “unreasonable.”  In arguing for a higher bounty, the claimant contended that he or she was “uncertain whether the Commission would in fact take action.”  This argument, however, didn’t support a “lengthy reporting delay while investors continued to suffer losses.”

As the SEC acknowledged in its order, foreign nationals may not benefit from every part of the Dodd-Frank Act, which not only created the whistleblower bounty program but also a created an additional right of action for whistleblower retaliation.  Some courts, including the Court of Appeals for the Second Circuit, have held that the anti-retaliation provision in Dodd-Frank does not protect a foreign national who internally reports misconduct overseas.  The SEC’s order said that it thinks there is enough of a nexus with the United States to provide for a bounty “whenever a claimant’s information leads to the successful enforcement of a covered action brought in the United States, concerning violations of the U.S. securities laws, by the Commission, the U.S. regulatory agency with enforcement authority for such violations.” 

For foreign whistleblowers, the lesson is that they may be much better off if they report explosive information to the SEC rather than taking it up the chain.  If they choose the first path, they could receive a lucrative and perhaps even life-changing bounty; if they choose the second, they may have no protection under Dodd-Frank if their employer decides to cut them lose.  We’ll be watching to see if the emphasis on external reporting and whistleblower awards, particularly for foreign nationals, leads to increased reporting of violations of the Foreign Corrupt Practices Act and other laws within the SEC’s enforcement jurisdiction.

Information provided on InsightZS should not be considered legal advice and expressed views are those of the authors alone. Readers should seek specific legal guidance before acting in any particular circumstance.

As the regulatory and business environments in which our clients operate grow increasingly complex, we identify and offer perspectives on significant legal developments affecting businesses, organizations, and individuals. Each post aims to address timely issues and trends by evaluating impactful decisions, sharing observations of key enforcement changes, or distilling best practices drawn from experience. InsightZS also features personal interest pieces about the impact of our legal work in our communities and about associate life at Zuckerman Spaeder.

Information provided on InsightZS should not be considered legal advice and expressed views are those of the authors alone. Readers should seek specific legal guidance before acting in any particular circumstance.

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