The Securities and Exchange Commission said Friday it has issued a whistleblower award of more than $300,000 to a company employee who performed audit and compliance functions and reported wrongdoing to the SEC after the company failed to take action when the employee reported it internally.
The SEC noted that this is the first award for a whistleblower with an audit or compliance function at a company. The name of the whisteblower was not identified.
“Individuals who perform internal audit, compliance, and legal functions for companies are on the front lines in the battle against fraud and corruption. They often are privy to the very kinds of specific, timely, and credible information that can prevent an imminent fraud or stop an ongoing one,” said Sean McKessy, chief of the SEC’s Office of the Whistleblower, in a statement. “These individuals may be eligible for an SEC whistleblower award if their companies fail to take appropriate, timely action on information they first reported internally.”
This particular whistleblower award recipient reported concerns of wrongdoing to the appropriate people within the company, including a supervisor. But when the company took no action on the information within 120 days, the whistleblower reported the same information to the SEC. The information provided by the whistleblower led directly to an SEC enforcement action.
In this case, SEC v. Phillip J. DeZwirek, Civil Action No. 134-CIV-6135 (S.D.N.Y.), according to David J. Marshall of the law firm Katz, Marshall & Banks LLP in Washington, D.C., an attorney who contacted Accounting Today, it appears that the whistleblower reported the former chairman and CEO (and major stockholder) of two companies for alleged insider trading of the companies’ common stock.
The SEC complaint, filed in federal court in New York on Aug. 30, 2013, charged Phillip J. DeZwirek with insider trading and with numerous other securities violations.
According to the SEC complaint, DeZwirek engaged in insider trading on three separate occasions between 2008 and 2010 when he purchased stock in the companies while in possession of non-public information about new contract bookings or corporate acquisitions, and then benefited from sharp increases in the stock price when the companies issued press releases announcing the deals publicly.
The SEC announced a settlement on Sept. 3, 2013, in which DeZwirek agreed to pay more than $1.5 million to settle the SEC complaint. The SEC announced its award to a whistleblower who worked in compliance or audit, in the amount of more than $300,000 for information that led directly to the successful enforcement action. The award is approximately 20 percent of the amount the commission recovered from Mr. DeZwirek.
“It is very encouraging to see the SEC issue an award to someone who works in a compliance or audit role, as these employees are often the best-positioned to observe insider trading or other securities violations on the part of their employers,” Marshall wrote in an email to Accounting Today. “Here the employee did the right thing by reporting the violations internally, giving the company four months to address them, and then reported the violations to the SEC when the company took no action. I think we will see many more of these employees coming forward in the future now that the SEC has applied the 120-day exception to the general rule that they are not eligible to participate in the whistleblower program.”
The SEC’s whistleblower program rewards high-quality, original information that results in an SEC enforcement action with sanctions exceeding $1 million. Whistleblower awards can range from 10 percent to 30 percent of the money collected in a case. By law, the SEC noted that it must protect the confidentiality of whistleblowers and cannot disclose any information that might directly or indirectly reveal a whistleblower’s identity.
For more information about the whistleblower program and how to report a tip, visit www.sec.gov/whistleblower.
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