SEC awards $30 million to foreign whistleblower.

Just one week after the now resigning U.S. Attorney General, Eric Holder, urged administrative and judicial entities to increase awards in whistleblower cases, the SEC granted its largest award to date. They’ve awarded an unnamed foreign whistleblower $30 million dollars under the Dodd-Frank whistleblower provision. Under Dodd-Frank, “an individual alone, or jointly with others, must provide [the Commission] with original information about a violation of the federal securities laws that leads to the successful enforcement of a[n action].” The Dodd-Frank Act and the Sarbanes-Oxley Act partially ratify Article 31 of the United Nations Convention Against Corruption—an international treaty requiring employees who have a “reasonable suspicion” of federal statute violations by their employers, to report suspected violations to appropriate authorities. In light of some recent events such as Enron, the NSA, and the economic collapse in 2008, Holder, along with other activist groups, has been pressing for legislation requiring unprecedentedly large awards for whistleblowers. Holder argues that whistleblowers deserve large awards because they are almost always terminated by their employers, and frequently excommunicated from their profession altogether. Larger rewards would provide safeguards for the economic future of whistleblowers, as they will most likely not be able to return to the profession. Additionally, large damages would entice high standing corporate officials to be more forthcoming.

For confidentiality purposes, the SEC did not release any facts regarding the case, but they did find that U.S. anti-retaliation laws do not protect foreign whistleblowers. Under Dodd-Frank and the Sarbanes-Oxley Act employers cannot retaliate against employees who “blow the whistle.” That is, employers cannot demote, terminate, or intimidate employees based on their whistleblowing. However, because U.S. statutes do not protect foreign whistleblowers, they are subject to the laws of their governing nation regarding retaliation.

Here, it appears the SEC awarded large damages to give further protection to the foreign whistleblower—but is that fair? Further, do you think U.S. federal statutes regarding anti-retaliation should protect a foreign citizen who is working for a U.S. corporation? I reason the SEC acted appropriately in granting a larger-than-usual award if the aim of the statute is to protect the whistleblower. However, such implicit protections may cause problems that the U.S. is not prepared to deal with. For one, how much is too much? As David Smyth, of Brooks, Pierce, McLendon, Humphrey & Leonard, LLP points out,  “[w]hat if the 2010 Goldman Sachs case, with sanctions of $550 million, had been ignited by a whistleblower and the SEC decided to award that person 20% of it… [w]ould the whistleblower program have more or less credibility after paying out $110 million for that case?”

Sources: JD Supra; WSJ; Mod. Corp. Checklist (Westlaw)

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  1. Considering the purpose and main thrust of the Dodd-Frank act I think these large damages awards are perfectly appropriate. First, I think, as stated above protects the whistleblower themselves, as they are risking their careers to uphold these important regulations. Second, I think the whistle blower awards could be conduct regulating in the sense that the company will comply with regulations in fear of being liable for damages that may be conflated to protect the whistle blower.
    I also think the Dodd-Frank act should seek to protect foreign whistleblowers to the extent of its jurisdiction because compliance with these regulatory schemes is imperative to the wellbeing of the national and international economy — and protecting all whistleblowers is a means of doing just that.

  2. While I concur that whistleblowers in Dodd-Frank cases commit acts of bravery deserving reward, the idea of awarding whistleblowers such a large sum is nonsensical.

    As a matter of contrast, as of 2013, Medal of Honor recipients, who must risk their lives to receive the decoration, receive (in addition to their medal) a ten percent increase in retired pay [10 U.S.C. § 3991(2)], a Medal of Honor Pension of $1,277.89 per month, and assorted miscellaneous benefits.

    These benefits, while likely invaluable to their recipients, can hardly reach a monetary value of $30 million quantified objectively; even construed liberally, they would not even reach a fraction of that number.

    With that said, one must acknowledge that a substantial monetary reward is necessary to safeguard whistleblowers, foreign or domestic, from becoming destitute as a reward for their service to society. One recalls the brave statements of Henry Bruen, Jr.,* whose testimony helped to uncover the MCI-WorldCom fraud scandal in the early 2000s. “Where do I get my life savings back from?” Bruen lamented. “Or my career reinvigorated?”

    Bruen’s reward, if any, was and remains a pittance, particularly in light of the $30 million award here.

    Ensuring that whistleblowers live comfortable lives after effectively ending their careers is necessary; a thirty million dollar reward, however, is excessive.

    * A link to Mr. Bruen’s Victim Impact Statement, published August 11, 2005 by the New York Times, appears below:

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