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A Tale of Two Cases

The SEC needs more transparency

The SEC needs to begin identifying those receiving bounties as another $30 million goes to an unidentified whistleblower, says Reuben Guttman of Guttman, Buschner & Brooks PLLC.

Last week the United States Securities and Exchange Commission (SEC) announced the award of a $30 million bounty to an undisclosed whistleblower who reported undisclosed conduct by an undisclosed publicly traded scofflaw. With the SEC’s announced settlement of yet another unidentified case, it would seem that the agency has the hearing sensitivity of a canine and is responding to dog whistles. I mean isn’t whistleblowing about exposing wrongdoers and the factual basis of their wrongdoing to public scrutiny?

The SEC’s failure to tell us a little bit more about the basis for this award would be the story except for a snippet of information that the SEC did share with the public. It seems the $30 million award was made to a foreign whistleblower and the announcement of that decision comes only several weeks after the United States Court of Appeals for the Second Circuit in Liu v. Siemens refused to extend the anti-retaliation protections of the Dodd-Frank statute to a foreign whistleblower who reported alleged violation of the Foreign Corrupt Practices Act.

FCPA allegation

According to a lawsuit Liu filed in a United States District Court in New York, he discovered that Siemens employees were indirectly making improper payments to officials in North Korea and China in connection with the sale of medical equipment to those countries. Liu complained internally, and was terminated, whereupon he reported to the SEC that Siemens had violated the Foreign Corrupt Practices Act – an Act prohibiting companies that trade stock on US exchanges from making payments to foreign officials to secure business. Liu also alleged that Siemens had violated Dodd Frank’s anti-retaliation provisions.

The District Court dismissed Liu’s case, and the U.S. Court of Appeals for the Second Circuit sustained that decision, refusing “extraterritorial” enforcement of the Dodd Frank anti-retaliation proscriptions. The Second Circuit found it of no consequence that Siemens trades its stock on U.S. exchanges – and presumably to U.S. purchasers – or that Liu may be entitled to a bounty from the SEC if the agency successfully pursues Siemens for FCPA violations. The Court justified its holding by maintaining that there is a presumption against extraterritorial application of a law where there is no clear congressional intent to do so.

Local versus foreign

In this tale of two cases, it would appear that while the SEC is willing to pay significant bounties to foreign whistleblowers who provide information leading to successful compliance enforcement, the Second Circuit Court of Appeals has taken the position that these very whistleblowers – who have been so helpful to the SEC — are not necessarily entitled to redress in a US Court if their employer terminates their employment for the very cooperation that aids US regulatory enforcement actions.

While the SEC whistleblower programme is undoubtedly a work in progress, the notion that whistleblower assistance can leverage compliance enforcement is sound. In a global economy where corporate tentacles span geographic boundaries, there are not enough agency officials to monitor compliance on a global scale. Triple agency staff and the problem still will not be solved. There is a need for eyes and ears on the ground with the technical and language abilities and cultural sensitivities necessary to gather and synthesize information. This is the role whistleblowers play.

They are a means to leverage agency enforcement ability. And even where they never set foot on US soil, foreign whistleblowers can be well positioned to provide regulators, including the SEC, with information and analysis critical to compliance enforcement in the United States. For these foreign individuals who can be so helpful to domestic compliance enforcement it is incongruous that at least one court will not extend the full protections of the Dodd Frank anti-retaliation proscriptions. And that is the tale of two cases.

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