Yesterday, the Securities and Exchange Commission (SEC) granted a whistleblower represented by Malecki Law the maximum-allowable award of 30% of whatever the agency recovers in connection with its 2018 action and investment fraud charges against Sandy J. Masselli Jr., Carlyle Gaming & Entertainment Ltd., and other associated entities. The alleged perpetrators from New Jersey were charged with securities fraud and the misappropriation of over $3 million in retail investor funds, alleged to have pocketed the money from selling unregistered securities and falsely telling investors that the investment was destined for an imminent and lucrative IPO.
The SEC provides significant financial incentive for whistleblowers to come forward regarding securities law violations. The SEC introduced its whistleblower program in 2012, and recently surpassed over $1 billion in awards granted to over 200 different whistleblowers; the largest SEC award on record is $83 million. Depending on the timeliness and credibility of the tip, the SEC’s whistleblower program is authorized by Congress, through the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act, to grant awards that range between 10% to 30% of any recovery that the agency’s enforcement division makes of $1 million or more. The recovered funds come from the assets recovered and sanctions money paid by persons or entities who are found to be in violation of the federal securities laws.
Although it can be lucrative, most whistleblowers come forward to report securities violations for moral reasons or because they are victims themselves. And the reality is that filing a successful claim, where the whistleblower is granted an award, is extremely rare. In 2020 alone, the SEC received almost 7,000 claims, yet it has only awarded barely 200 awards in nearly a decade since the program began. So while the whistleblower application form is fairly simple, it is often necessary to additionally provide the SEC with supplementary briefs with complete and properly redacted evidentiary exhibits, containing concrete and original information that is presented in a manner that gets the SEC’s attention.
There are also numerous risks for whistleblowers, especially in recent times where we have seen whistleblowers intentionally “outed” by public figures for political gain. This is not only dangerous to the whistleblower’s well-being and safety but does a long-term disservice to the public’s incentive to report crime and fraud. Thus, when filing a claim, we take careful and extreme steps to make sure our whistleblower clients remain anonymous. We take a long view on these protections of anonymity because it can take a long time for whistleblower claims to come to a resolution; we set the expectation with our clients that it can take years for the SEC or other enforcement agencies to investigate and prosecute the reported misconduct, all while the alleged perpetrator is likely to continue that misconduct and harm until the authorities eventually step in.
Given the above, the long-term threat of retaliation against a whistleblower is significant, so protecting our clients’ anonymity is paramount. There are multiple federal and state laws that protect against retaliation and the unmasking of whistleblowers, including the Sarbanes-Oxley Act of 2002, Internal Revenue Code 26 U.S.C.S. § 7623 (b), and the Dodd-Frank Wall Street Reform and Consumer Protection Act. In circumstances where the whistleblower is blowing the whistle on his or her employer, there is also the anti-retaliatory provisions under New York Labor Law § 740, as well as other similar provisions in other U.S. states. Further, a whistleblower may be called as a witness and connected to certain documents if the matter goes to trial. This usually occurs later, sometimes years after the whistleblower tip was filed; however, only a small percentage of cases go to trial versus settle. Nonetheless, anonymity is maintained to the last possible moment, and if a real threat exists, the Department of Justice and FBI have procedures in place to aid in the protection of the whistleblower. All in all, we take the utmost care in protecting our clients, while simultaneously filing claims that keep our clients safe, proactively managing the case to even one day turn profitable by keeping the investigating authorities informed.
Malecki Law’s top-rated New York securities attorneys specialize in securities matters and have recovered millions of dollars for victimized investors. Our whistleblower attorneys are experienced with presenting clients’ cases in a way that catches the attention of the regulators. When you are ready to blow the whistle on injustice within the financial services industry, contact Malecki Law for a free consultation.