All inquiries are kept confidential. The Director of our SEC whistleblower practice is a Certified Public Accountant, Certified Fraud Examiner, and former KPMG external auditor.
In the early 2000s, the U.S. Securities and Exchange Commission (SEC) was abruptly reminded about the dangers of accounting fraud after Enron and WorldCom collapsed within months of each other. In the years following these corporate accounting scandals, the SEC maintained an enforcement regime that prioritized identifying and rooting out similar corporate accounting frauds.
The SEC has continued to focus its enforcement efforts on accounting fraud as well as other violations that affect retail investors. A June 2020 Cornerstone report titled Accounting and Auditing Enforcement Activity—2019 Review and Analysisfound that enforcement actions entailing restatements or internal control weaknesses increased by 65%, and was nearly double the 2018 percentage.
Despite the SEC’s continued focus on accounting fraud, companies continue to “cook the books” when it is necessary to make the numbers (see our article: Top 10 Ways Companies Cook the Books). Fortunately for investors, whistleblower tips have significantly aided the SEC in quickly identifying and halting such frauds. In fact, since the enactment of the SEC Whistleblower Program in 2011, whistleblower tips have consistently been one of the SEC’s most powerful weapons in its law enforcement arsenal against accounting fraud.
Hire a Winning Multi-Disciplinary Team of Accounting Fraud SEC Whistleblower Lawyers
It is critical to hire counsel with the knowledge and experience to maximize your likelihood of recovering a whistleblower award. Before retaining an SEC whistleblower attorney, ask about their track record representing whistleblowers. Some aspects of our experience that set us apart and enabled us to obtain awards for our clients include:
Matt Stock is a Certified Public Accountant, Certified Fraud Examiner and former KPMG external auditor. As an auditor, Mr. Stock developed an expertise in financial statement analysis and internal controls testing and fraud recognition. He uses his auditing experience to help SEC whistleblowers investigate and disclose complex financial frauds to the government and develop a roadmap for enforcement attorneys to take an enforcement action. Matt has been interviewed on CNBC, quoted extensively about whistleblower rewards in the media, and is the lead author of SEC Whistleblower Program: Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award.
Described by the National Law Journal as a “leading whistleblower attorney,” founding Principal Jason Zuckerman has established precedent under a wide range of whistleblower protection laws and obtained substantial compensation for his clients and recoveries for the government in whistleblower rewards and whistleblower retaliation cases. He served on the Department of Labor’s Whistleblower Protection Advisory Committee, which makes recommendations to the Secretary of Labor to improve OSHA’s administration of federal whistleblower protection laws. Zuckerman also served as Senior Legal Advisor to the Special Counsel at the U.S. Office of Special Counsel, the federal agency charged with protecting whistleblowers in the federal government. At OSC, he oversaw investigations of whistleblower claims and obtained corrective action or relief for whistleblowers.
Zuckerman was recognized by Washingtonian magazine as a “Top Whistleblower Lawyer” (2020, 2018, 2017, 2015, 2009, and 2007), selected by his peers to be included in The Best Lawyers in America® in the category of employment law (2011-2022) and in SuperLawyers in the category of labor and employment law (2012 and 2015-2022), is rated 10 out of 10 by Avvo, based largely on client reviews, and is rated AV Preeminent® by Martindale-Hubbell based on peer reviews.
In response to the 2008 financial crisis, Congress passed the Dodd-Frank Act, which, among other things, created the SEC Whistleblower Program. Under the program, whistleblowers may be eligible for monetary awards when they report original information to the SEC about violations of federal securities laws, including accounting fraud. If a whistleblower’s tip leads to a successful enforcement action in which the SEC obtains more than $1 million, the whistleblower is eligible to receive an award of between 10% and 30% of the total monetary sanctions collected. In certain circumstances, even auditors and accountants may be eligible for awards under the program.
Since 2012, the SEC has issued more than $1 billion in SEC whistleblower awards, which includes a multi-million dollar payout to one of our clients. The largest SEC whistleblower awards to date are:
$279 million,
$114 million,
$110 million,
$50 million,
$50 million,
$50 million,
$39 million,
$37 million,
$37 million, and
$36 million.
Report Accounting Fraud to the SEC Anonymously
The SEC Whistleblower Program also protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity. Whistleblowers can submit a tip anonymously to the SEC if represented by counsel.
Click below to hear an SEC whistleblower lawyer’s tips for SEC whistleblowers:
Whistleblower Tips Aid the SEC in Identifying and Halting Accounting Fraud
Whistleblower tips related to violations in corporate disclosures and financial statements have consistently been one of the most common types of tips submitted to the SEC. In fact, the number of these tips has increased every year since the SEC Whistleblower Office opened its doors in August 2011:
2011: 51 tips related to corporate disclosures and financials
2012: 547 tips related to corporate disclosures and financials
2013: 557 tips related to corporate disclosures and financials
2014: 610 tips related to corporate disclosures and financials
2015: 687 tips related to corporate disclosures and financials
2016: 938 tips related to corporate disclosures and financials
2017: 954 tips related to corporate disclosures and financials
2018: 983 tips related to corporate disclosures and financials
2019: 1,107 tips related to corporate disclosures and financials
2020: 1,710 tips related to corporate disclosures and financials
2021: 1,913 tips related to corporate disclosures and financials
2022: 1,554 tips related to corporate disclosures and financials
In 2016, a former Monsanto executive received a $22 million SEC whistleblower award for reporting a well-hidden accounting fraud to the SEC. Monsanto was fined $80 million for accounting fraud.
Red Flags for Identifying Financial Statement and Accounting Fraud
Accurate financial reporting is integral to maintaining public markets that function fairly and efficiently. The SEC relies on industry insiders, such as the ex-Monsanto executive, to help identify and report accounting fraud and to aid in successful enforcement actions. Former Enforcement Director Andrew Ceresney has noted that although the SEC’s focus on accounting fraud has yielded positive results, it is important to remain vigilant against such misconduct and remember the causes of previous corporate accounting scandals as these causes continue to be the same in new accounting scandals. Red flags include:
Significant pressure to meet earnings and other performance expectations;
Excessive focus on short term performance rather than longer-term success;
Poor oversight in units and subsidiaries;
Growth outpacing the reporting and accounting infrastructure; and
Management’s over-reliance on processes and poor “tone at the top.”
How to Report Accounting Fraud and Earn an SEC Whistleblower Award
To report accounting fraud and qualify for an award under the SEC Whistleblower Program, the SEC requires that whistleblowers or their attorneys report the tip online through the SEC’s Tip, Complaint or Referral Portal or mail/fax a Form TCR to the SEC Office of the Whistleblower. Prior to submitting a tip, whistleblowers should consult with an experienced whistleblower attorney and review the SEC whistleblower rules to, among other things, understand eligibility rules and consider the factors that can significantly increase or decrease the size of a future whistleblower award.
SEC Targets Accounting Fraud
See below for examples of several SEC enforcement actions brought against companies for accounting fraud and violations, including:
On September 6, 2023, the SEC announced that Fluor Corporation agreed to pay $14.5 million to settle charges stemming from the company’s improper accounting on two large-scale, fixed-price construction projects. According to the SEC’s order, Fluor, a global engineering, procurement, and construction company, bid on two projects relying on overly optimistic cost and timing estimates and subsequently experienced cost overruns that worsened over time. Fluor then failed to sufficiently maintain internal controls to account for the projects in accordance with the percentage of completion accounting method under U.S. generally accepted accounting principles (GAAP). In particular, Fluor’s accounting errors resulted in the company improperly pulling forward revenue and delaying the recognition of losses. As a result, Fluor materially overstated its net earnings by as much as 37 percent from the company’s fiscal year 2016 through the first quarter of its fiscal year 2019. In addition, the delayed loss recognition on the second project caused Fluor to overstate its net earnings by 22 percent in the second quarter of 2018. [Press Release]
The SEC charged Maxwell Technologies, its sales executive, and former CEO and former controller, in a fraudulent revenue recognition scheme designed to inflate the company’s reported financial results. The SEC stated that “Maxwell recorded revenue before it was actually earned, to make investors believe the company’s most important business segment…was growing faster than it actually was.” Maxwell violated antifraud books and records, and internal accounting controls provisions of the federal securities laws. Maxwell was ordered to pay a $2.8 million penalty, while former sales executive and corporate officer Van Andrews was ordered to pay a $50,000 penalty. Maxwell’s former CEO and former controller were also ordered to pay $80,000 in disgorgement and prejudgment interest, and a $20,000 penalty respectively. [Press Release]
The SEC charged Panasonic Avionics Corp (“PAC”) with fraudulently overstating pre-tax and net income, by prematurely recognizing more than $82 million in revenue for the fiscal quarter ending June 30, 2012. PAC backdated an agreement with a state-owned airline, providing misleading information to PAC’s auditor. PAC further lacked sufficient internal accounting controls and failed to keep accurate books and records in connection with their transactions. Panasonic was ordered to pay approximately $143 in disgorgement and prejudgment interest. In a separate Department of Justice criminal action, Panasonic was ordered to pay a criminal penalty of over $137 million for violating the FCPA. [Press Release]
The SEC charged Tangoe with accounting fraud when they misstated the existence and/or timing of approximately $40 million in revenue, out of total revenue of $566 million for the years in question. Tangoe violated their publicly stated policy on reported revenue by engaging in sham transactions with a large customer during fiscal years 2014 and 2015, to inflate Tangoe’s revenues that were to be reported for year-end. Tangoe further entered into agreements with a payment processor, and negotiated a series of contractual agreements requiring the processor to make payments that were recognized as revenue for fiscal years 2014 and 2015, thereby reducing Tangoe’s sizeable shortfalls in revenue for the relevant quarters, when they could not be recognized. The SEC charged Tangoe, its former CEO Albert R. Subbloie, former CFO Gary R. Martino, former vice president of finance Thomas H. Beach, and former senior vice president of expense management operations Donald J. Farias, all with violations of federal securities laws. Tangoe was ordered to pay a penalty in the amount of $1.5 million. [Press Release]
The SEC charged seismic data company, SAExploration Holdings Inc. (SAE), for a multi-year accounting fraud that falsely inflated the company’s revenue by approximately $100 million and concealed the theft of millions of dollars by the executives. According to the SEC’s complaint, SAE executives entered into a series of seismic data acquisition contracts totaling approximately $140 million with a purportedly unrelated Alaska-based company that was in fact controlled by two of the executives. Of the amount SAE recorded in revenue, approximately $100 million was as improperly recorded in light of the Alaskan company’s inability to pay and the SAE executives’ control of the company. [Press Release]
The SEC charged Manitex, a manufacturer and distributor of cranes, forklifts and heavy equipment, for accounting fraud schemes that resulted in the issuance of materially misstated financial statements. According to the SEC’s orders, Manitex improperly accounted for and misled its outside auditor about nonexistent inventory. In addition, Manitex also improperly recognized revenue from and misled its outside auditor about approximately $12 million in purported “bill and hold” crane sales. [Press Release]
The SEC charged Revolution Lighting Technologies Inc. for an accounting fraud that falsely inflated its reported revenues over a four-year period. According to the SEC’s complaint, from late 2014 to mid-2018, Revolution Lighting used two accounting schemes to improperly recognize revenue at the end of fiscal quarters to make up for revenue shortfalls: (1) sales personnel were pressured to improperly record anticipated future sales as current “bill and hold” sales; and (2) the company recognized revenue from the uncompleted sales. [Press Release]
Insurance company booked loans as revenue at an estimated $3.9 billion in accounting fraud and conspired to induce traders to inflate the prices of the stocks.
WorldCom inflated earnings by more than $11 billion and cost investors close to $200 billion. The deal reflects a civil penalty of $2.25 billion, which was reduced as part of the bankruptcy reorganization.
Time Warner engaged in securities fraud related to its accounting for online advertising revenue. It used “round-trip transactions” to inflate its online advertising revenue to hide the business slow down.
Qwest intentionally recognized over $3.8 billion in revenue and excluded $231 million in expenses that did not meet generally accepted accounting principles (GAAP) in an attempt to meet their predicted revenue and earnings projections.
Computer Associates prematurely recognized over $3.3 billion in revenue by manipulating its quarter end cutoff dates to meet Wall Street’s quarterly earnings estimates. SEC’s Northeast Regional Office Director Schonfeld compared it to a team “that plays on after the final whistle has blown … until it had all the points it needed to make every quarter look like a win.”
Panasonic overstated pre-tax and net income by prematurely recognizing more than $82 million in revenue by backdating an agreement with an airline. Additionally, Panasonic “lacked sufficient internal accounting controls and failed o make and keep accurate books and records in connection with purported consultant retained by PAC.”
Weatherford inflated earnings by using deceptive income tax accounting which included an international tax avoidance structure that reduced its effective tax rate (ETR) and tax expense. False financial statements inflated earnings by over $900 million.
Shortly after Healthsouth went public in 1986, it began to “artificially inflate its earnings to meet Wall Street analysts’ expectations and maintain the market price.” Since 1999, it overstated its earnings by over $1.4 billion.
Lehman intentionally manipulated their accounting reports through numerous Repo105 transactions that hid their actual debt. When they declared bankruptcy they were $615 billion in debt.
Process to Obtain Accounting Fraud SEC Whistleblower Award
