Connections
The SEC initially denied Bloomberg Law’s Freedom of Information Act request for a full accounting of which lawyers have received payouts on behalf of clients, saying it didn’t keep such records. On appeal it provided a partial list covering the first 10 years of the program, but only one month of data on the $700 million awarded to informants since January 2021. The agency promised to provide more records in the future.
Jordan Thomas, a former SEC assistant chief litigation counsel who helped write program rules and opened his own whistleblower practice days before it went online, represented clients who received more than $152 million of the first $600 million awarded, according to the agency’s first FOIA response. Attorneys typically work on contingency fees ranging from 35% to 40%, according to lawyers who specialize in SEC and Justice Department whistleblower cases.
Thomas said in interviews that his success stems not from connections, but from his ability to identify and build cases based on his knowledge of what SEC investigators need. Still, he said understands why the agency is reluctant to release all the numbers.
“It would be indisputable evidence that my law firm, Phillips & Cohen, and a few others that got into this early are the dominating firms, and that would be coming right from the mouth of the SEC,” Thomas said. “I’m not beating my chest; it’s just a fact that it would hurt the program because it would send a signal, rightly or wrongly, that would essentially discourage the competition.”
Alex Platt, a University of Kansas law professor who specializes in securities regulations, has been studying the program for two years while fighting the SEC to obtain records. He said secrecy and apparent advantages for former insiders are hurting the program.
“Yes, they must protect the whistleblower, but it would also be a public service to let potential informants know what type of investigations they take,” Platt said in an interview. “If you have a program that is so complex or so specialized that the same group of attorneys are getting most of the cases, then the program isn’t working properly.”
If the SEC were to receive the Madoff tips today, Platt wrote of the program earlier this year, would the result be different?
“The answer is: we don’t know.”
‘A Lot of Discretion’
Insiders, whether hourly employees, contractors, or corporate executives, have long played a crucial role in helping the government and investors stop corporate corruption. The False Claims Act administered by the Department of Justice allows individuals who know of fraud to file federal lawsuits on behalf of the government.
Last year the DOJ recouped $5.6 billion in fraud from defense contractors, medical providers and others. As with the SEC program, the whistleblowers are awarded 10% to 30% of any money recovered or fines paid, minus attorney fees.
That’s where the similarities end, according to attorneys and former prosecutors who have worked with both programs.
FCA cases are filed in federal court and subject to supervision both by the DOJ and federal judges. The whistleblower’s name eventually will become public, and courts must approve all settlements, fines, dismissals, and attorneys’ fees.
The SEC’s whistleblower program is far less accountable. The agency in its early years identified some corporate wrongdoers, but hasn’t identified a company in any final order since 2017.
A 2018 lawsuit filed by a claimant in the case of Teva Pharmaceutical Industries Ltd.contended that the agency began redacting more information from public disclosures to hide the slow pace of its investigations, rather than to protect whistleblowers, after The Wall Street Journal used the agency’s public notices to show long delays in paying informants. Teva paid a fine of more than $500 million, but the whistleblower waited years without hearing anything from the SEC, according to the complaint.
The agency said in a statement to Bloomberg Law that confidentiality extends to “any information that either identifies, or could reasonably be expected to identify, a whistleblower.”