Howard B. Sirota

Saturday, August 7, 2010

Fink & Grow Rich

The Dodd-Frank Act enacted July 21, 2010 included provisions to incentivize SEC whistleblowers to provide the SEC with original information about securities fraud. The Act provides whistleblowers with a financial incentive of ten(10) to thirty(30) percent of an SEC recovery over $1 million. The SEC will have 270 days to promulgate regulations under the Act, and is already seeking public comments.

The Act also contains specific whistleblower protection provisions prohibiting retaliation against SEC whistleblowers, including the employer even if the whistleblower has blown the whistle on his own employer. This means that anyone at a major Wall Street firm or a public company with knowledge of serious securities law violations involving serious money can "Fink & Grow Rich" by blowing the whistle. The SEC whistleblower's downside is not being welcome at the office, and the end of his or her business career on Wall Street or Corporate America.

Thus, if you have a high-ranking position at a major Wall Street firm or public company, you had better be very sure of your claim of securities fraud before you register your SEC whistleblower filing. However, if you are sure, especially if you obtain a review of your narrative and documents from experienced securities lawyers to organize your presentation to the SEC in factual and legal issues presented, to represent you at meetings with the SEC staff and in connection with any attempted retaliation against you, you may ultimately be very well rewarded, less legal fees of course, which are generally contingent fee arrangements with law firms independent of the major Wall Street firms and Corporate America. Don't expect major law firms to rush into this space.

To take a best-case scenario, suppose someone at Goldman Sachs had blown the whistle on "The Fabulous Fab" et al, spilled the beans to the SEC, and received 10% of the $550 million settlement, all within a year. Push the needle to 30%% and we're talking serious exit money even for a senior Managing Director at Goldman Sachs.

Granted, your colleagues will frown upon you and treat you like a "rat" as if they were the Mob and you had sworn an oath of silence. You may have to sue to enforce your rights against retaliation against you. It's risky unless you're sure you have the goods.

The new law provides for the SEC to establish a separate Office to screen and evaluate filings by SEC whistleblowers in coordination with the SEC Division of Enforcement.

There is thus a new path to riches on Wall Street and in Corporate America. It's the reverse of "Don't Ask; Don't Tell." Now it's "Find Out & Tell." Tell the SEC.

Enron. Worldcom. Cendant. In every securities fraud there are numerous participants in the process, including mid-level people who do not expect to receive anywhere near the potential financial reward of a piece of a large SEC recovery, plus people who are ambivalent about their participation in the fraud, concerned about their own legal exposure, feel betrayed or unrewarded by the kingpins of the fraud, have been fired or resigned, or have a personal grudge. These in-the-know persons now have a serious financial incentive to "Fink & Grow Rich."

Disclosure: I am representing an SEC whistleblower claiming entitlement to an award in the event of an SEC recovery arising out of the original information provided to the SEC.

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