Record amount jangles nerves at big corporates
“Since the inception of the SEC Whistleblower Program, the SEC has paid more than $1.3 billion in awards to whistleblowers, including seven awards to our clients,” enthuses one Washington DC law firm’s website. The big statement is meant to attract big revenues from wannabe whistleblowers – and that should worry employers that may have something to hide.
In a groundbreaking development, a historic whistleblower award of US$279 million has been granted by the Securities and Exchange Commission (SEC) under its cash-for-tips program. This colossal sum stems from a significant bribery case involving the telecommunications giant Ericsson.
The award was directly linked to Ericsson's $1.1-billion settlement reached in 2019 with U.S. authorities, following allegations of the company's involvement in illegal payments to secure business in five countries. These actions violated U.S. antibribery laws, as stated by sources knowledgeable about the matter.
To maintain confidentiality and adhere to whistleblower protection regulations, the SEC refrained from disclosing the enforcement action or the identity of the whistleblower responsible for the revelation.
Ericsson's path to this substantial penalty has been marked by a series of missteps over the last 4 years. In March, the company acknowledged its guilt and agreed to pay an additional fine of approximately $207 million. This settlement aimed to address allegations that it had breached the deferred prosecution agreement it had previously established with the Justice Department.
Incentives for whistleblowers
The SEC had built up a substantial incentive for employees to spill the beans on illegal behaviour by employers. Whistleblowers operating under their guidelines have the potential to receive a financial reward ranging from 10% to 30% of the fines collected in SEC civil-enforcement actions and associated actions pursued by other enforcement agencies.
However, certain conditions must be met:
Monetary Awards: Whistleblowers who provide original and credible information leading to successful enforcement actions by the SEC may be eligible to receive monetary awards. The amount of the award is determined based on a percentage of the total monetary sanctions collected by the SEC in the enforcement action.
Award Range: Whistleblowers can receive awards ranging from 10% to 30% of the total monetary sanctions collected by the SEC. The percentage awarded depends on various factors, including the significance of the information provided, the level of assistance provided by the whistleblower, and the extent to which the whistleblower cooperates with the SEC.
Eligibility Criteria: To be eligible for an award, whistleblowers must voluntarily provide original information about a violation of federal securities laws that leads to a successful SEC enforcement action resulting in monetary sanctions exceeding $1 million.
Protection of Whistleblower Identity: The SEC maintains strict confidentiality rules to protect the identity of whistleblowers. The identity of the whistleblower is not disclosed to the public or the company under investigation unless required by law.
Whistleblower Retaliation Protections: The SEC provides protections against retaliation for individuals who report information or assist in SEC investigations. Whistleblowers who experience retaliation can take legal action against their employers.
Anonymous Reporting: Whistleblowers have the option to submit information anonymously to the SEC if represented by an attorney. However, to be eligible for an award, the whistleblower must disclose their identity to the SEC at some point during the process.
The SEC spokesperson declined to comment on the matter, as did representatives from Ericsson and the U.S. Attorney's Office for the Southern District of New York, responsible for prosecuting Ericsson's case.
While two other individuals applied separately for whistleblower awards, their claims were ultimately denied. The SEC order, available to the public with significant redactions, explained that the information provided by these claimants did not contribute to the agency's enforcement action.
Penalties against Ericsson
The charges initially brought against Ericsson by prosecutors from the Southern District of New York in 2019 alleged wrongdoing in Djibouti, China, Vietnam, Kuwait, and Indonesia between 2000 and 2016. The SEC's complaint stated that Ericsson subsidiaries secured contracts worth around $427 million by utilizing third parties to bribe officials in Saudi Arabia, China, and Djibouti.
The 2019 deferred prosecution agreement included a criminal penalty of $520 million and the disgorgement of $540 million in illicit profits. Additionally, Ericsson was required to retain a compliance monitor for three years and cooperate in related investigations. However, in March, prosecutors declared that the company failed to fulfill its settlement obligations, which encompassed full cooperation with U.S. authorities and the disclosure of evidence and allegations.
In more bad news for the telecoms giant, an ongoing investigation is being conducted into Ericsson's past operations in Iraq, and the company has affirmed its cooperation with the probe.
Biggest whistleblower payouts
This unprecedented whistleblower award of $279 million blows away the previous record set in October 2020 when the SEC granted an individual a $114 million award.
The SEC’s 10 biggest whistleblower payouts:
- $279 million - May 5, 2023
- $114 million - October 22, 2020
- $110 million - September 15, 2021
- $50 million - April 15, 2021
- $50 million - March 19, 2018
- $50 million - June 4, 2020
- $39 million - September 6, 2018
- $37 million - December 19, 2022
- $37 million - March 26, 2019
- $36 million - September 24, 2021
It may be no surprise that the country’s most populous state is also the most prolific SEO whistleblower- between 2011 and 2018, 2046 of 26,076 nationally were from the state that likes to call itself golden.
New York 950
New Jersey 427