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SEC Issues Rare Whistleblower Award to Audit Professional

On December 14, 2020, the Securities and Exchange Commission announced an award of more than $300,000 to a whistleblower who uncovered potential securities law violations in connection with audit-related responsibilities.  The whistleblower met with the SEC more than a dozen times and provided “high quality information and continuing assistance,” including identifying additional witnesses.  This is only the fourth time that the SEC has issued an award to an audit or compliance professional.

In announcing the award, Jane Norberg, Chief of the SEC’s Office of the Whistleblower, stated: “This award is an example of the important role that audit and compliance professionals can play in assisting the Commission’s enforcement efforts, especially when the entity is attempting to thwart an investigation.”  Compliance and audit professionals often have access to information that may evidence legal violations, as well as responsibilities to prevent or mitigate such violations.  While compliance and internal audit professionals generally are not considered eligible for whistleblower awards under the Program, there are three exceptions in which such personnel may become eligible whistleblowers:

  • when the whistleblower believes disclosure may prevent substantial injury to the financial interest or property of the entity or investors;
  • when the whistleblower believes that the entity is engaging in conduct that will impede an investigation; or
  • when at least 120 days have elapsed since the whistleblower reported the information to his or her supervisor or the entity’s audit committee, chief legal officer, chief compliance officer – or at least 120 days have elapsed since the whistleblower received
  • DOJ Releases Framework for Cryptocurrency Enforcement

    On October 8, 2020, the U.S. Department of Justice (“DOJ”) released the publication “Cryptocurrency: An Enforcement Framework,” (“Framework”) which described emerging threats and enforcement challenges associated with cryptocurrency. DOJ’s Cyber-Digital Task Force produced the Framework to highlight important relationships DOJ has built with other domestic and international regulatory and enforcement partners, and its strategic response to address emerging issues concerning cryptocurrency and the “blockchain” or “distributed ledger” technology underlying it.  The Framework’s stated goal is to ensure that cryptocurrencies and associated technologies are safe and do not imperil public safety or national security. While DOJ explicitly recognizes cryptocurrency’s potential in the Framework, it also outlines both threats and illicit opportunities that cryptocurrency provides for nefarious actors.

    For a full discussion of the Framework, please refer to this BCLP client alert co-authored by Ashley Ebersole, Ben Saul, Mark Sere and Jason Semmes.

    Supreme Court Affirms SEC Disgorgement Powers, But With Limits

    Liu v. Securities and Exchange Commission,  the U.S. Supreme Court decision this week affirming the SEC’s right to seek disgorgement,  displayed a striking consensus on the securities regulatory agency’s ability to seek return to investors of wrongdoers’ ill-gotten gains.  The decision was not a complete victory for the SEC, however, since the Court also emphasized limitations on disgorgement that it suggested the SEC had exceeded with its past practices.

    At issue was a remedy the SEC has long claimed the right to seek in civil enforcement actions: disgorgement of the defendant’s gains for return to injured investors.  The SEC in many fraud cases seeks both civil penalties, as authorized by statute, as well as disgorgement as an equitable remedy.  And courts generally permit that practice.

    In light of certain recent Court rulings against the SEC on various issues and the Roberts court majority’s attitude toward administrative agencies generally, some securities practitioners anticipated a ruling in Liu that courts lacked the power to order disgorgement as a remedy in securities enforcement civil actions, upsetting years of prior judicial practice. However,  the Court’s June 22 decision in Liu affirmed the SEC’s right to seek disgorgement by an 8-1 vote, with only Justice Clarence Thomas dissenting.

    The majority opinion by Justice Sonia Sotomayor did identify certain limits on disgorgement, which may constrain the SEC from seeking disgorgement as freely as it has in the past. The opinion also articulated those limits in a manner that leaves substantial room for argument over how they

    SEC reportedly investigating public disclosures by PPP loan recipients

    We understand that several issuers and regulated entities that publicly disclosed their receipt of funds from the SBA’s Paycheck Protection Program (PPP), established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, have received requests for information from the SEC’s Division of Enforcement. In general, the requested information appears to concern the recipients’ eligibility and need for PPP funds, the financial impact on recipients of the pandemic and government response, and recipients’ assessment of their viability and access to funding.

    This SEC outreach is rumored to be part of a sweep styled In the Matter of Certain Paycheck Protection Program Loan Recipients. The SEC is reportedly investigating whether certain recipients’ excessively positive or insufficiently negative statements in recent 10-Qs may have been inconsistent with certifications made in PPP applications regarding the necessity of funding. These information requests are voluntary at this time, and it appears that not all PPP loan recipients are receiving document requests. There may be a correlation between large funding amounts and SEC scrutiny, both in terms of attracting interest and avoiding the impact of the SBA’s announced safe harbor for loans less than $2 million (though the safe harbor does not explicitly affect the SEC). Recent news reports indicate that the Department of Justice  Fraud Section also is investigating possible misconduct by PPP loan applicants. Initial DOJ actions have focused on potential overstatement of payroll costs and/or employee headcount, as well as misuse of PPP proceeds.  While existing allegations appear focused on extreme behavior, as

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