Articles Posted in SEC Whistleblower Program: Foreign Corrupt Practices Act (FCPA) Cases

For many years, Michael Sullivan of our firm and his colleague Jim Breen have organized the “Whistleblower Law Symposium.” It has consistently received high marks from participants. 

This year’s Symposium will be available either in-person or online on Wednesday, March 13, starting at 815 am EDT.  It offers 7.5 CLE hours, including 1 Ethics hour and 4 Trial Practice hours. Cost is $279.  

You can register (and see the full Agenda) here:….   Topics include: 

After reporting on the SEC’s investigation and findings of 20 years of “misstatements” by the LDS Church and Ensign Peak Advisors, Inc., the Wall Street Journal‘s Jonathan Weil again reports on facts revealed by our SEC and IRS whistleblower submissions on behalf of our client, David Nielsen.  Mr. Nielsen exposed violations of law relating to a what he called a “clandestine hedge fund” affiliated with the Mormon Church, in his recent appearance on 60 Minutes.

Turning to IRS violations, this WSJ article addresses in part why, “[o]n its 2007 return, Ensign Peak put down ‘1,000,000’ for its total assets. The real number was about $38 billion, an Ensign Peak document shows.”

To quote the Journal:

In this week of new bank bailouts (following Silicon Valley Bank’s), a bipartisan group of five Senators has urged common sense improvements to the SEC Whistleblower laws.  These Senators emphasize the “crucial role of whistleblowers” in protecting both investors and taxpayer funds.

  • The SEC Whistleblower Reform Act of 2023, co-sponsored by Sens. Grassley, Warren, Collins, Warnock, and Mastro, removes some predictable roadblocks to an effective SEC Whistleblower program.  To summarize from Sen. Grassley’s release, the Act would:
    1. Protect whistleblowers from retaliation if they report violations only in the workplace.  Currently, whistleblowers are protected only once they report misconduct directly to the SEC or certain other officials.

As the anxious public yearns for vaccines, treatments, and protections from the virus, the SEC has warned of a “substantial potential for fraud relating to COVID-19. The SEC’s enforcement actions against 23 companies are just the start, as more fraud will undoubtedly be uncovered.

Whistleblowers are critical to the SEC’s efforts to stop COVID-19 fraud.  The SEC Office of the Whistleblower is authorized to pay monetary awards to whistleblowers whose information leads to an order of sanctions of $1 million or more.

Our firm’s lawyers are uniquely suited to bring attention to meritorious SEC whistleblower claims.  Our firm has the only former Senior Officer and Regional Director of the SEC who represents SEC whistleblowers, Walter Jospin.  We have the ability and experience to evaluate a potential Whistleblower claim and determine if it will interest the SEC Division of Enforcement.  If it does not, the case is lost.  Few lawyers have that experience.

The SEC Whistleblower Program authorized in 2010’s Dodd-Frank law has greater significance because the SEC and the Justice Department share jurisdiction over Foreign Corrupt Practices Act cases.

Today, SEC Director of Enforcement Robert Khuzami and Assistant Attorney General Lanny Breuer released the “Resource Guide to the U.S. Foreign Corrupt Practices Act.” They describe the Guide as “a unprecedented undertaking by DOJ and SEC to provide the public with detailed information about our FCPA enforcement approach and priorities.”

FCPA investigations have increased significantly in the past few years, and the dollar amount of these cases is often quite large. FCPA cases brought by SEC whistleblowers will only add to amount of FCPA violations uncovered.

The Guide is a primer on the FCPA. The SEC and DOJ have attempted to summarize “who and what is covered by the FCPA’s anti-bribery and accounting provisions; the definition of a ‘foreign official’; what constitute proper and improper gifts, travel and entertainment expenses; the nature of facilitating payments; how successor liability applies in the mergers and acquisitions context; the hallmarks of an effective corporate compliance program; and the different types of civil and criminal resolutions available in the FCPA context.”

Chapter 3 describes the accounting provisions over which the SEC has authority. When a defendant pays commercial bribes to foreign officials, the offending companies often disguise the payments through false accounting entries. The FCPA creates civil liability for such violations of the Act’s “books and records” provision.

The FCPA’s “internal controls” provision is also important, as it requires that issuers devise and maintain a system of internal accounting controls to assure management’s control,authority, and responsibility over the firm’s assets.
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When the SEC debated in 2011 requiring “internal” reporting within companies as a prerequisite to filing an SEC Whistleblower claim under Dodd-Frank, business interests howled that any other rule would “destroy” compliance programs.

Never mind that the vast majority of whistleblowers have always raised concerns about illegal conduct internally before reporting to the government. Whistleblower lawyers already knew that fact from twenty-five years of experience with the False Claims Act–the nation’s major qui tam whistleblower law that inspired the new SEC Whistleblower Program. The availability of rewards had not dissuaded whistleblowers from reporting their concerns internally for a quarter century.

When I met in 2011 with SEC Chairman Mary Schapiro and the other SEC Commissioners with other whistleblower advocates to discuss the proposed SEC Whistleblower rules, it was apparent–and shocking–that this false argument was being considered seriously. We urged the SEC to rely on these years of experience with the False Claims Act and to reject any such requirement.

The final whistleblower rules of the Commodities Futures Trading Commission (CFTC) are being announced now at a CFTC open meeting. Like the SEC, the CFTC has rejected any provision that whistleblowers be required first to report internally the violations in question, but will treat internal reporting as a “positive” consideration in its awards.

The alternative pushed by business would have required all CFTC whistleblowers first to risk career suicide by reporting the boss’s wrongdoing to the boss himself.

Industry’s approach would have made the Commission the laughing stock of law enforcement, since no rational person with a career and a mortgage would risk reporting even major fraud with that requirement.

Fortunately, the CFTC put first its responsibility to protect the public, and is taking seriously its law enforcement duties by seeking to root out major frauds.

Madoff, Stanford, and the other major frauds of the past decade prove that internal compliance programs cannot protect the public. That is why Congress in Dodd-Frank demanded the first meaningful SEC and CFTC whistleblower programs.

We applaud the CFTC on this important stand, and look forward to reviewing the text of the final rules when made available.
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The SEC Whistleblower Program encompasses not only classic securities violations, but also violations of the Foreign Corrupt Practices Act (“FCPA”), a topic we have followed closely.

This past week, the SEC filed and settled an FCPA case against Armor Holdings, Inc., and collected more than $5.6 million, while the Department of Justice added almost $10.3 million in criminal fines.

The SEC charged that Armor Holdings, Inc. engaged in a bribery scheme to sell body armor to U.N. peacekeeping missions. The Commission also alleged that Armor Holdings violated the federal securities laws’ books and records and internal controls provisions by failing to account properly for commissions in 2001-2007.

Demonstrating the SEC’s increased emphasis on FCPA enforcement, this case is one of 32 FCPA cases the Commission has filed since 2010. Bribery of foreign government officials for business is having increased repercussions.

According to the SEC’s Complaint, through a U.K. subsidiary Armor Holdings paid more than $200,000 through an intermediary to a United Nations official who could send it business, and used a sham consulting agreement to disguise its actions. The result was more than $7 million in additional revenues, and more than $1.5 million in additional profits, according to the SEC.
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The suspense over the final SEC whistleblower rules ended with the SEC’s release of its final whistleblower rules last week. The CFTC is to follow suit soon in announcing its own commodities whistleblower rules.

We have followed the SEC rules’ development, after being part of the small group of pro-whistleblower attorneys who met with the Commissioners and staff and urged changes to the draft rules to make them effective.

In January, I had the opportunity to visit with SEC Chairman Mary Schapiro, Director Khuzami, and SEC staff, and then separately with Commissioners Luis A. Aguilar, Kathleen L. Casey, Troy A. Paredes, and Elisse B. Walter, to discuss changes to the proposed rules for the new SEC Whistleblower program.

Just as we have followed closely the development of the IRS Whistleblower program since Congress authorized it in December 2006, we are watching the birth of the new SEC Whistleblower program. In 2010’s Dodd-Frank Financial Reform law, Congress mandated the creation of what could be the first meaningful SEC and CFTC Whistleblower programs.

Today, the SEC took a major step in announcing the first head of the nascent SEC Whistleblower Office: Sean McKessy, a former Senior Counsel in the SEC’s Division of Enforcement from 1997 to 2000.

According to the SEC’s announcement, “Mr. McKessy served as corporate secretary for both Altria Group, Inc. and AOL Inc., and as securities counsel for Caterpillar, Inc. In these roles, Mr. McKessy developed and supervised internal compliance and reporting programs related to the federal securities laws, served as corporate compliance officer, and coordinated the reporting of potential violations to boards of directors.”

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