A second area of whistle-blower lawsuits will come from market participants cheap oakley sunglasses sale, such as hedge funds or commodities traders, who see frauds occurring in their markets and report it to the proper authority. Hedge funds and other investment funds, for example, may identify accounting fraud through their own rigorous analysis that tests a company’s representations. Likewise, commodities traders may identify market manipulations in their industry.
This week, David Kovel of Kirby McInerney LLP connected to weigh in on the ways in which Dodd-Frank may lead to more whistle-blowing. I want to be careful with my choice of words. I’m not saying that Dodd-Frank will necessarily stimulate more whistle-blowing.
Forgive the dramatic headline; I want your attention because Dodd-Frank appears to be the sort of regulation that keeps on giving. Each time I post insights on one facet of the legislation, someone pings me, eager to discuss another part of the new law.
Nor am I complaining about Dodd-Frank’s impact on companies; there’s enough belly-aching about regulatory risk making the rounds these days. To me, those complaints are akin to bemoaning bad cards at the poker table (where, I have noticed, the winners never complain about bad cards).
Eric Krell: What sorts of issues do you expect are most likely to generate whistle-blower lawsuits?
David Kovel: The most common issue that will generate whistle-blower lawsuits is likely to be material accounting fraud at a company that files with the SEC. My firm has already seen company insiders who have identified potentially material accounting fraud and intend to bring it to the SEC’s attention
Eric Krell: How does Dodd-Frank create new causes of action for securities litigation?
David Kovel: Technically http://nbajerseys.altervista.org cheap oakley sunglasses sale, Dodd-Frank does not give the U.S. Securities and Exchange Commission (SEC) or the Commodities Future Trading Commission (CFTC) any new legal claims. What it does provide is an avenue for people with information about securities or commodities fraud to use to bring the information to the SEC or CFTC and receive a reward for blowing the whistle. If the SEC http://nbajerseys.altervista.org, CFTC, or any other governmental entity brings an action as a consequence of the information provided, the whistle-blower can share between 10 and 30 percent of the fine levied.
Eric Krell: What are the potential damages that whistle-blowers will be able to claim under the new law?
David Kovel: In cases of large-scale fraud, a whistle-blower stands to receive many millions of dollars. For example, if hypothetically the recent case brought by the SEC against Goldman Sachs that resulted in a $550 million settlement had been brought to light by a whistle-blower, the whistle-blower would be collecting somewhere between $55 and $165 million.
Yet another source of whistle-blower lawsuits could be employees of securities or commodities brokers or investment funds who identify fraud. An insider at a Ponzi scheme of the sort made famous by Bernard Madoff will now be able to come forward under the whistle-blower provisions of Dodd-Frank and collect a share of any fines.
All publicly listed companies have to deal with Dodd-Frank. Here cheap oakley sunglasses sale, Kovel offers his take on how companies may want to deal with the new law’s whistle-blower provision.
While these numbers sound large, cases brought under an analogous law that allows whistle-blowers to collect when they report fraud directed against the government, such as Medicaid fraud, frequently result in whistle-blower awards of this order of magnitude. A recent 2009 settlement between the U.S. Dept. of Justice and Pfizer, Inc., resulted in whistle-blowers collectively receiving over $80 million. ###
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