Even thought the SEC's final
regulations for the Dodd-Frank whistleblower program just became effective
on August 12, 2011, the agency has already filed its first report on the
whistleblower program. Under Section
924(d) of the Dodd Frank Act, the SEC must report annually to Congress on
its activities, whistleblower complaints and the agency's response to the
complaints. Because the agency's November 2011 report is written as of the
September 30, 2011 end of the fiscal year, it covers only seven weeks of
whistleblower data for fiscal year 2011. The Report can be found here.
The report shows that during the first seven weeks of the
program, the agency received 334 whistleblower tips. The SEC itself cautions
that "due to the relatively recent launch of the program and the small sample
size, it is too early to identify any specific trends or conclusions from the
data collected to date." Nevertheless, even though it is early yet, there are
some interesting tidbits in the report's data.
First, a surprising number of the reports originated
outside the United States. That is, not only did the agency receive individual
whistleblower submissions from individuals in 37 different states, but it also
received reports from individuals in eleven different foreign countries. These
non-U.S. whistleblowers 32 submissions represented roughly ten percent of all
of the whistleblower submissions during the reporting period. The country with
the highest number of submissions was China (10), followed by the U.K. (9).
Second, though many commentators had expected that the
Dodd Frank whistleblower provisions would trigger a flood of FCPA-related
reports, and though there were so many reports from outside the U.S.,
whistleblower submissions reporting FCPA violations represented only four
percent of the submissions during the reporting period, a level of submissions
that has puzzled some commentators (refer for example here).
When the Dodd-Frank Act was first enacted, there was a
great deal of concern that the bounty rewards in the whistleblower provisions
would trigger a flood of whistleblower reports. (The bounty provisions require
an award of between 10% and 30% of the amount of SEC recoveries based on the
whistleblower submissions, when the SEC's recovery exceeds $1 million). Some
might find the 334 of whistleblower submissions during the reporting period
But in addition to the reporting period only representing
seven weeks, it is also worth noting that there still have been as yet no
bounty awards under the Dodd-Frank whistleblower program. The SEC's recent
report shows that the agency maintains a fund of over $452 million in order to
fund future whistleblower awards.
A former SEC official who helped draft the whistleblower
said that he expects that in coming years "the SEC will exceed its previous
records in both number of actions brought and the amount of sanctions collected
as a result of whistleblower assistance."
The $452 million fund available for bounty awards
suggests that we will indeed see significant numbers of whistleblower
submissions in the future. Based on the history of other government
whistleblower programs that offer steep financial motivations, the expectation
that there will be significant numbers of whistleblower report in the future
seems well founded. For example, an entire industry has grown up in support of
qui tam actions under the False Claims Act, with serial claimants and
specialized law firms organized to pursue these claims systematically. David
Barrio has a very interesting November 17, 2011 in the AmLaw Litigation
Daily article (here)
discussing the serial qui tam claimant and his "industrious" law firm that has
over a 16-year period recovered over $2.5 billion from pharmaceutical companies
accused of ripping off Medicare and Medicaid.
And while the SEC's first report since the whistleblower
program covers only a short time period and reflects only a small number of
whistleblower submissions, among those submissions are some significant items.
As discussed in Jean Eaglesham's November 16, 2011 Wall Street Journal
among the reports the SEC received during the initial reporting period were
tips that the Bank of New York Mellon and State Street Corp. were improperly
charging large institutional clients for currency trades.
These examples show the potential significance of the
whistleblower program. As these types of whistleblower reports translate into
bounty awards, more submissions will follow. The SEC's initial report for the
short reporting period provides a cryptic but tantalizing glimpse of the likely
future of this program.
EEOC Releases 2011 Report: And
speaking of annual government reports, the Equal Employment Opportunity
Commission has also released its fiscal 2011 Performance and Accountability
Report. The EEOC's report, which can be found here, contains a
detailed overview of the agency itself. The report also contains some data
relating to the agency's enforcement activities.
Among other things, the agency's report shows that in
fiscal 2011, the agency received a record number of charges during fiscal 2011.
The 99,947 charges the agency received during 2011 slightly exceeded the 99,922
charges the agency received in 2010. This relatively slight annual gain in the
number of charges between 2010 and 2011 contrasts with the steep increase in
the number of charges between FY 2004 and FY 2009, when the annual increases in
the number of charges ranged from 12 to 38 percent. This rapid ramp up of the
number of charges has produced increased what the report describes as the
agency's "inventory." The report details the steps the agency is taking to try
to reduce its accumulated inventory.
Cases Against U.S-Listed Chinese Companies
Continues to Accumulate: As I have previously noted elsewhere,
one of the significant factory in securities class action litigation filing
activity during the past 18 months has been the flood of new cases involving
U.S.-listed Chinese companies. One of the frequent comments about this surge of
filings has been that sooner or later this phenomenon has to play itself out,
since sooner or later the plaintiffs' lawyers will just run out of companies to
But while this filing phenomenon has to come to an end
sooner or later, the lawsuits involving U.S. listed Chinese companies are still
continuing to come in. In their November 16, 2011 press release (here),
plaintiffs' attorneys' announced that they had filed an action in the Central
District of California against Keyuan Petrochemicals and certain of its
directors and officers. In their complaint, which can be found here, the
plaintiffs allege that the company failed to disclose certain related party
transactions and that the company's financial statement did not reflect the
company's true financial condition.
With the filing of this complaint, there have now been a
total of 36 securities class action lawsuits in 2011 involving U.S. listed
Chinese companies, and a total of 47 since January 1, 2010.
other items of interest from the world of directors & officers liability,
with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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