More On Legal & Compliancefrom The Advisor's Professional Library
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
The Securities and Exchange Commission (SEC) announced Tuesday that it has given out its first whistleblower award to an individual who helped the agency stop a multimillion-dollar fraud.
The award recipient, who asked the agency for anonymity, will receive $50,000, the first payout from the SEC’s program to reward people who provide evidence of securities fraud.
“The whistleblower program is already becoming a success,” said SEC Chairwoman Mary Schapiro, in a statement announcing the reward. “We’re seeing high-quality tips that are saving our investigators substantial time and resources.”
The award winner provided documents and other significant information that allowed the SEC’s investigation to move at an accelerated pace and prevent the fraud from ensnaring additional victims, the agency said. The whistleblower’s assistance led to a court ordering more than $1 million in sanctions, of which approximately $150,000 has been collected thus far. The SEC said the court is considering whether to issue a final judgment against other defendants in the matter. “Any increase in the sanctions ordered and collected will increase payments to the whistleblower,” the SEC said.
Robert Khuzami, director of the SEC’s Division of Enforcement, said in the same statement that the whistleblower “provided the exact kind of information and cooperation we were hoping the whistleblower program would attract. Had this whistleblower not helped to uncover the full dimensions of the scheme, it is very likely that many more investors would have been victimized.”
The SEC did not approve a claim from a second individual seeking an award in this matter because the information provided did not lead to or significantly contribute to the SEC’s enforcement action, as required for an award.
The Dodd-Frank Act authorized the whistleblower program to reward individuals who offer high-quality original information that leads to an SEC enforcement action in which more than $1 million in sanctions is ordered. Awards can range from 10% to 30% of the money collected.
Dodd-Frank included enhanced anti-retaliation employment protections for whistleblowers and provisions to protect their identity. The law specifies that the SEC cannot disclose any information, including information the whistleblower provided to the SEC, which could reasonably be expected to directly or indirectly reveal a whistleblower’s identity.