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Can I receive an award for reporting financial statement fraud?

Awards for Reporting Financial Statement Fraud

Yes. Under the SEC Whistleblower Program, eligible whistleblowers can receive an award for reporting financial statement fraud if their information leads the SEC to a successful enforcement action with monetary sanctions exceeding $1 million.  In exchange for the information, the SEC Whistleblower Office will award the whistleblower with 10-30 percent of the total monetary sanctions collected in the action.  The SEC Whistleblower Program allows whistleblowers to report financial statement fraud anonymously if represented by an attorney.  Notably, even auditors and accountants may be eligible for awards under the program.

SEC Prioritizes Enforcement Efforts Against Financial Statement Fraud

Financial statement fraud has consistently been one of the top priorities for the SEC, and constitutes a large percentage of enforcement actions annually.  Between 2011 and 2018, whistleblower tips pertaining to violations in corporate disclosures and financial statements have increased from 51 tips in 2011, to 983 tips in 2018.

Recent Enforcement Actions Against Financial Statement and Accounting Fraud

In 2018, the SEC brought several large enforcement actions against companies for accounting fraud.  Most prominently, in April 2018, the SEC charged Panasonic Avionics Corporation with fraudulently overstating pre-tax and net income, by prematurely recognizing over $82 million in revenue for the fiscal quarter ending in June 2012.  Panasonic was ordered to pay approximately $143 million in disgorgement and prejudgment interest.  In September 2018, the SEC charged Tangoe, Inc. with misstating the existence and/or timing of approximately $40 million in revenue for the year in question, to inflate Tangoe’s revenues that would be reported for year-end.  Tangoe was ordered to pay a $1.5 million penalty.

SEC Whistleblower Program

The SEC Whistleblower Program issues awards to eligible whistleblowers for reporting any violation of the federal securities laws, including financial statement fraud, if their information leads to a successful enforcement action with monetary sanctions in excess of $1 million.  Since the inception of the program, whistleblower tips have enabled the SEC to recover more than $1.7 billion in financial remedies from wrongdoers and the SEC Whistleblower Office has paid more than $300 million in awards to whistleblowers.  The largest SEC whistleblower awards to date are $50 million, $39 million and $33 million.

SEC Whistleblower Attorneys

If you would like more information on reporting accounting or financial statement fraud, contact an SEC Whistleblower Attorney at Zuckerman Law for a free, confidential consultation. Zuckerman Law is one of the nation’s leading law firms representing whistleblowers in whistleblower rewards and retaliation cases.  For more information about SEC whistleblower awards, download our ebook: Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award.

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Largest Financial Statement Frauds

The table below identifies some of the largest SEC enforcement actions against companies for accounting fraud:

CompanyMonetary SanctionsViolation
American Insurance Group (AIG)$800 MillionInsurance 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$750 MillionWorldCom 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.
Fannie Mae$350 MillionFannie Mae “issued materially false and misleading financial statements in SEC filings and in various reports disseminated to investors.”
Time Warner$300 MillionTime 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 Communications$250 MillionQwest 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$225 MillionComputer 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 Corp$143 MillionPanasonic 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$140 MillionWeatherford 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.
Healthsouth$100 MillionShortly 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 Brothers$80 MillionLehman intentionally manipulated their accounting reports through numerous Repo105 transactions that hid their actual debt. When they declared bankruptcy they were $615 billion in debt.

How to Qualify for a SEC Whistleblower Bounty

 

Jason Zuckerman, Principal of Zuckerman Law, litigates whistleblower retaliation, qui tam, wrongful discharge, and other employment-related claims. He is rated 10 out of 10 by Avvo, was recognized by Washingtonian magazine as a “Top Whistleblower Lawyer” in 2015 and selected by his peers to be included in The Best Lawyers in America® and in SuperLawyers.

Matthew Stock is the Director of the Whistleblower Rewards Practice at Zuckerman Law. He represents whistleblowers around the world in SEC, CFTC and IRS whistleblower claims. He is also a Certified Public Accountant, Certified Fraud Examiner and former KPMG external auditor.

Diana Alsabe is a law clerk at Zuckerman Law and a third-year law student at the Catholic University of America Columbus School of Law. Previously, she has worked as a legal intern at the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission's Whistleblower Office.