SEC CORNER
SEC WHISTLEBLOWER AWARDS TOP $1B
In one of many actions in what turned out to be a significant month for the U.S. Securities and Exchange Commission’s (“SEC”) whistleblower award program, the SEC employed a rarely-used exception to securities laws to award $1 million to a trio of whistleblowers who worked in compliance-related roles.
Since their primary function is to remedy potential violations internally, compliance and audit professionals are typically ineligible for SEC whistleblower awards, but certain exceptions can apply. In this case, despite holding compliance roles at the company, the SEC noted the whistleblowers “remained eligible for an award because they submitted their information to the commission more than 120 days after the alleged conduct had been reported internally."
To qualify for an award, whistleblowers must provide the SEC with “original” information based on their “independent knowledge” or “independent analysis,” but that generally excludes those whose information is gleaned from compliance or internal audit responsibilities. In order for compliance professionals’ information to qualify as original, individuals must provide it to the SEC 120 days after having reported it internally to the entity’s audit committee, chief legal officer, chief compliance officer, or other supervisors. According to the SEC, two of the claimants did just that, while the third reported the potential violations to the commission 120 days after determining that senior management was already aware of the misconduct.
In another noteworthy action, the SEC issued its second-highest whistleblower award when it recently awarded $110 million to an individual who provided significant independent analysis that substantially advanced the SEC's and another agency's investigations. Under the SEC's whistleblower program, individuals who provide critical information to other agencies may be eligible for a related action award if they are also eligible for an award in the underlying SEC action. In this instance, the award consisted of approximately $40 million in connection with an SEC case and approximately $70 million arising out of related actions by another agency.
Since issuing its first award in 2012, the SEC has awarded approximately $1.1 billion to 214 individuals. Whistleblower awards can range from 10-30% of the money collected when the monetary sanctions exceed $1 million.
SEC SETTLES WITH CONSUMER GOODS COMPANY OVER ACCOUNTING IMPROPRIETY
As previously discussed in the August 2021 edition of Executive Liability Insights, the U.S. Securities & Exchange Commission (“SEC”) launched a probe into the accounting practices of a consumer goods company, which ultimately resulted in a goodwill write down as well as a securities class action lawsuit. The SEC alleged the misconduct stemmed from the company’s reduction of its Cost of Goods Sold, resulting in significantly inflated earnings reports. Earlier this month, the SEC reported the company and two of its former executives would pay several million dollars to settle these allegations. Neither the company nor the executives admitted or denied the SEC’s claims.