Articles Posted in Whistleblower Issues


According to an article by Rob Lenihan of Thomson Reuters, published in August 2014, Sean McKessey, head of the SEC’s whistleblower program, was quoted by the Wall Street Journal as saying that the numbers [of whistleblower complaints] will soon grow and “we’re getting close to the sweet spot.” Malecki Law had reported on this Wall Street Journal article and examined the state of Dodd-Frank Whistleblower program, as it existed then, in this blog post. A year into it, let’s examine where we are at with the growing numbers.

During the 2014 fiscal year, the number of whistleblower tips and complaints received by the Commission grew 10.1 % from the year before to 3,620. The Dodd- Frank Whistleblower program, which promises cash rewards for those whose tips lead to a successful investigation by the SEC, has witnessed many milestones in past four years. In a recent development, SEC paid a handsome $3 million to a company insider in July 2015, who helped crack a complex fraud case.

According to Andrew Ceresney, Director of the SEC’s Division of Enforcement. “Insiders may hold the key to helping our investigators unlock intricate fraudulent schemes,” and “by providing significant financial incentives for people to come forward, the SEC’s whistleblower program continues to be profoundly effective in helping us protect investors and hold wrongdoers accountable.” The SEC’s whistleblower program has already paid more than $50 million to 18 whistleblowers, since its inception in 2011, including $30 million in awards in 2014, more than doubling the $14 million rewards it paid in 2013. Let’s hope the trend continues!

In another record-breaking development, SEC announced an award of more than $30 million to a foreign whistleblower in September 2014. In Liu v Siemans AG(4) the Second Circuit court had ruled that Dodd-Frank’s anti-retaliation provisions do not apply to conduct abroad and dismissed a suit brought by a former employee of a Siemens subsidiary in China who claimed to have been fired after reporting potential corruption. Although the whistleblower is a foreign resident and none of the termination actions occurred within the United States, SEC stated that the plaintiff provided “key original information” leading to a successful enforcement action by the SEC concerning U.S. Securities violations. Therefore, in such instances the whistleblower protection provision is deemed to have extraterritorial applications although not implicitly set forth in the whistleblower provisions. In 2014, according to the Commission, tips have been received from individuals in 83 countries outside the United States, including the United Kingdom, India, Canada, China and Australia.

The initial reluctance to come forward seems to be wearing off and with a better effort to protect the rights of national and international whistleblowers, more and more tipsters are inclined to step forward. If you feel you have valuable information, consult Malecki Law about your options.

In only three years, the Dodd-Frank whistleblower program, which promises cash rewards for those whose tips lead to a successful investigation by the SEC, has yielded more than 6,500 tips according to a recent article in the Wall Street Journal. Though traditionally thought of as insiders, tipsters do not just come from only inside the companies targeted. Rather, whistleblowers are coming forward from all walks of life, including investors and retirees, in addition to insiders and the family of insiders according to the article. businessman-with-the-notebook-1-1362246-m.jpg

The rate at which individuals are submitting tips also seems to be rising. As a firm that represents whistleblowers, Malecki Law has also seen a growth in calls from prospective whistleblowers seeking legal counsel to file a tip with the SEC. Just recently Jenice Malecki, Esq. was interviewed by Rob Lenihan of Thomson Reuters: “‘I can tell you that whistleblowers as potential clients have increased over the last year — substantially,’ Malecki said. ‘There’s definitely an increase, and everybody who is somehow involved in the securities industry either as a customer or otherwise feels like they have some information they could tip on.'”

Although some individuals may have initially been reluctant to come forward for fear of retaliation, a recent push to protect the rights of whistleblowers has helped to alleviate many of those concerns. Such a positive development coupled with the mechanisms in place that allows whistleblowers to report securities laws violations anonymously has allowed tipsters to come forward without unnecessary fear of retribution.

In addition to ensuring that the rules are followed and that rule-breakers are held accountable, whistleblowers would appear to have more good reason to come forward. Even though $15 million has already been awarded to whistleblowers, it would appear that this is just the tip of the ice berg. Mr. Sean McKessey, head of the SEC’s whistleblower program, was quoted by the Wall Street Journal as saying that the numbers will soon grow and that a “‘critical mass’ of tips will soon yield more investigations, fines and bounties.” According to Mr. McKessey, “we’re getting close to the sweet spot.” This would mean more money for whistleblowers.

If you believe you may have valuable information and are thinking about blowing the whistle, contact an attorney at Malecki Law for a free consultation. The attorneys at Malecki Law have experience representing whistleblowers, and can help you file your whistleblower complaint with the appropriate agency to maximize your chances at getting the reward to which you may be entitled.

Keith Edwards, a former J.P. Morgan employee is due to receive a nearly $64 million payment from the U.S. government for the tips he provided as a whistleblower. Mr. Edwards provided information that led to a payment by J.P. Morgan to the government in the amount of $614 million stemming from insurance on home loans.

Allegedly, J.P. Morgan had been falsifying certifications for Federal Housing Administration and Department of Veterans Affairs loans, going back as far as 2002. As a result, the agencies reportedly suffered substantial losses.

It was reported that the $614 million was paid by J.P. Morgan to settle the charges levied against it as a result of Mr. Edwards’ tips. In settling, J.P. Morgan reportedly admitted to approving thousands of FHA and hundreds of VA loans that did not pass normal underwriting requirements.

Mr. Edwards was able to collect his reward under the False Claims Act. Under the False Claims Act, the government reportedly collected roughly $3.8 billion in 2013 alone – a big year for the Justice Department. Under this act, individuals can sue the target company directly. The government may elect to join the whistleblower in pursuit of the target company in court.

Whistleblowers can also benefit from a myriad of other whistleblower reward programs, including Dodd-Frank and Sarbanes-Oxley. Unlike the False Claims Act, whistleblowers under these acts will not bring suit against the target company directly. Rather, whistleblowers will simply provide the government with the “tip.” It is then up to the government to pursue the bad actor or not.

Nonetheless, whistleblowers under these acts can also reap large rewards for the information they provide. Under Dodd-Frank, the Securities and Exchange Commission (SEC) has paid over $14 million in rewards in the past two years alone. Under Dodd-Frank the SEC is looking for tips that will aid in the successful investigation of securities laws violations. In return, a whistleblower may be entitled to between 10% and 30% of all monies recovered.

Once you have made the decision to be a whistleblower, a major concern should be to make sure that you have maximized your potential to receive your reward. It is important to know how to present your “tip” to the appropriate government agency. A properly prepared and presented “tip” may increase the chances that the government pursues the case. Whistleblowers should also be aware of potential pitfalls that may compromise their ability to collect an award.

Like anything else, it is important to be diligent and protect your rights when making the decision to blow the whistle. This decision is often not an easy one and should be made carefully and diligently. You should speak with a knowledgeable attorney first to ensure that you are protected that maximize your chances at receiving an award for your information.

If you believe you may have valuable information and are thinking about blowing the whistle, contact an attorney at Malecki Law for a free consultation. The attorneys at Malecki Law have experience representing whistleblowers, and can help you file your whistleblower complaint with the appropriate agency to maximize your chances at getting the reward to which you may be entitled.

clooney.jpgApparently, you do not need to be George Clooney to enjoy whistleblower protections.

Employees of private contractors and subcontractors who provide services to publicly traded companies including mutual funds are protected by the whistleblower provisions of Sarbanes-Oxley Act of 2002 (“Act”), the United States Supreme Court held in its decision dated March 4, 2014. See 18 U.S.C. § 1514A; Lawson v. FMR LLC, — S. Ct. —, 2014 WL 813701, *7, 2014 U.S. LEXIS 1783 (2014). The majority decision, written by Justice Ginsburg, relied on the language of the Act, applying “their ordinary meaning.” Lawson, *7.

The case involved two employees who formerly worked for “privately held companies that provide advisory and management services to” Fidelity funds. Id. at *6. One of the employees worked for Fidelity Brokerage Services, LLC, a subsidiary of the Respondents, for 14 years. Id. This employee alleged that she suffered a series of adverse employment actions, eventually being constructively discharged, after raising concerns about certain cost accounting methodologies that may have overstated expenses associated with operating the mutual funds. Id. The second employee worked for Fidelity Management & Research Co. and later by a different subsidiary, FMR, Co., Inc. for eight years, and alleged he was fired after raising concerns about inaccuracies in a draft SEC registration statement concerning certain Fidelity funds. Id.

The Respondents argued that the intent of Congress was to include only those contractors who fire employees of public companies, such as the “ax-wielding specialist” exemplified by George Clooney’s character in the movie Up in the Air. Id. at *7. In that movie, Mr. Clooney was hired by companies for the sole purpose of passing on the news that certain employees had been fired. The Court reasoned that if the company made the decisions about who would be fired, as they did in Up in the Air, they would not be insulated from liability by the contractor, who would merely be communicating the information to the employees. Id.

The holding of the Supreme Court has a significant impact in the area of whistleblower protections. This decision solidifies whistleblower protection to employees of contractors. This is significant for mutual funds, which the Supreme Court noted do not generally employ any of their own employees and are “managed, instead, by independent investment advisors. Id. at *12.

The Court held that the plain language of the Act and the treatment of a similar whistleblower provision protecting employees who complain about violations relating to air carrier safety supported its conclusion. The Act stated “[n]o [public] company… or any officer, employee, contractor, or subcontractor … may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against any employee in the terms and conditions of employment because of [whistleblowing or other protected activity].” Id. at *3 (citing § 1514A(a) (2006 ed.)). Separately, the Court in a minority decision cited the legislative history for the Act, but this part was not joined by Justices Scalia and Thomas, and therefore was not a part of the holding of the majority.

The attorneys at Malecki Law are committed to providing advocacy to whistleblowers who courageously wave the flag about fraudulent conduct occurring in the securities industry. If you believe you have original information about potentially fraudulent conduct, contact Malecki Law for a confidential consultation.

Jenice Malecki of Malecki Law will be appearing on Fox Business News at 12pm today, speaking with Dennis Kneale about whether or not banks, such as JP Morgan, should be getting amnesty from regulators.

In the fallout from the financial crisis, banks, such as JP Morgan have seen their legal fees related to defending complaints from both customers and the SEC, along with other regulators, rise substantially. JP Morgan shocked many in the marketplace when it recently revealed that its “litigation reserve” was $23 billion, and that it had paid out roughly $8 billion in recent settlements and judgments.

In light of this revelation, some have called for amnesty to be provided to large banks, in an effort to relieve them of these substantial legal burdens and jumpstart the markets by freeing up large reserves of capital.

Unfortunately, many of these proponents overlook the value provided to the marketplace by the punitive measures imposed by the SEC and other financial market regulators.

Ms. Malecki will discuss how relieving these banks of their liabilities for past bad acts would eliminate accountability from the marketplace and only serve to embolden the bad actors in the future. Accountability is necessary for the efficient operation of the marketplace and consumer protection.

Americans cannot afford another financial crisis.

The SEC announced on October 1, 2013 that it awarded a whistleblower over $14 million for original information that led to the recovery of “substantial investor funds.” The whistleblower program was established after the enactment of the Dodd-Frank Act, which rewards individuals who provide original information that leads to sanctions exceeding $1 million. The SEC has the authority to award from 10 to 30 percent of the money collected in a case.

One of the most important things about information provided by a whistleblower is that such information is “original.” This means that the information must be derived from the whistleblower’s original knowledge or analysis, that it is not known by the SEC from some other source, and that it is not derived solely from a publicly available source, including allegations made in a different judicial setting.

The size of the current award appears to indicate two things: first, the quality of information and extent of cooperation provided by the whistleblower to the SEC, whose identity remains confidential; and second, the SEC’s eagerness to grow and benefit from the whistleblower program. Without disclosing the size of the award, in its Order, the SEC noted that the size of the award was based on the significance of the information provided by the whistleblower and the assistance the whistleblower provided to the SEC in the action, in part. The SEC, under its new Chairperson Mary Jo White, has shown a desire to become more aggressive in pursuing individuals and to get companies to admit to wrongdoing. It is no surprise then, that the SEC appears to be providing increasingly larger awards to whistleblowers, to provide individuals the incentive to waive red flags about wrongdoing at a time when the SEC may be able to recover and/or safeguard investor funds.

Malecki Law lawyers, providing substantial experience in securities and employment litigation, are ideally suited to represent whistleblowers seeking to bring valuable original information to the SEC. If you believe you have such information, do not hesitate to contact us immediately.


An intriguing new instance of whistleblowing has emerged from Clifford Jagodzinski, an ex-employee of Morgan Stanley Smith Barney LLC who claims that at least one highly successful broker for the firm was churning preferred securities in 2011. Churning in this case would violate not only state law, but also rules in place under the Dodd-Frank Act. For a further definition of churning, visit the Investors section of our company website. The Whistleblowers section of the site additionally identifies the nature of such cases and the firm’s unique interest in them.

The accused broker, wealth manager Harvey Kadden, was allegedly making tens of thousands of dollars in commissions despite supposedly taking actions which created minimal advances or even losses for his clients. Mr. Jagodzinski claims these moves “were obviously designed to bilk customers”. Mr. Kadden is said to have been recruited from Bank of America/Merrill Lynch, where he had worked for 30 years to great success, often appearing in Barron’s list of the Top 100 Financial Advisors.

Jagodzinski claims he was told to stop investigating Kadden by higher-ups within Morgan Stanley. Kadden is reported to have run a team of four brokers who had brought $14 million in profits to the company within the last 12 months, while managing a total of over $1 billion in customer portfolios.

Expectations for Kadden were said to have run high. Despite pressure from some within Morgan Stanley to drop the case, Jagodzinski’s complaint allegedly cites his reported supervising managers David Turetzky and Ben Firestein as disingenuously appreciative to Jagodzinski for having Kadden’s alleged “flipping [of] these preferreds”.

Turetsky allegedly discouraged Jagodzinski from bringing legal action against a different broker – within Morgan Stanley but separate from Kadden – who claimed to have made as many as eighty unauthorized trades when Jagodzinski informed the broker that he had found one such instance in his research into company fraud. Jagodzinski’s claim argues that Turetzky feared firing the broker would cause the company to be leveled with unwanted fines and penalties, and do harm to the broker, whom he is said to have considered a fair and decent employee.

Jagodzinski was allegedly fired in April of this year after having reported several breaches of the law to Turetzky since December of 2011. The range of such alleged violations includes alleged failure to register home offices as work locations, improper trading, and even drug abuse. Jagodzinski is said to have been fired just ten days after initially suggesting to Turetzky that the offenses in question be reported.

It is the right of any and all professionals and investors alike who believe they may have suffered losses as a result of engaging in whistleblowing actions to contact our offices to explore their legal rights and options. If you or a family member feels they have been unjustly fired or persecuted for whistleblowing activities, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation at (212) 943-1233.


A headline of the New York Times’ Sunday Business section published May 19th, Gretchen Morgenson asks “Is Insider Trading Part of the Fabric?“, raising a potentially distressing question for regulators and market analysts alike. Morgenson profiles the woes of one Ted Parmigiani, a Lehman Brothers investment analyst whose career was apparently placed in peril in 2004, when his research was allegedly leaked by a colleague in his research department. Parmigiani was then planning to raise his assessment of computer chip producers Amkor Technology. The leak was apparently discovered by Parmigiani on the planned date of his announcement, when Amkor’s price quickly shot up that morning, an hour before his new assessment was to be broadcast. Such are the dangers those working in investment too often face, and therein lies the potential for such figures to become brave whistleblowers. Visit the Practice Areas section of Malecki Law’s website to learn more about the firm’s work in aiding whistleblowers of fraud and further financial corruption.

Parmigiani responded by spending years providing information to the Securities and Exchange Commission (SEC) about the trading and research climate at Lehman, where suspicious trades were all too common, and sales reps and analysts illegally shared both office space and data. As part of 1.4 billion collective settlement paid by Lehman and nine other firms following an Eliot Spitzer-induced inquiry into insider trading, Lehman agreed to separate analysts from sales teams. Parmigiani says he was asked to ignore this supposed divide, write praise for investment banks whether it was merited or not, and explicitly told not to make negative comments about Lehman-favored companies and executives.

Parmigiani alleged that Lehman traders were often advised of changes to analysts’ company ratings before the revisions were publicly announced, and that traders were tipped off by analysts so that they would make hedge bets with Lehman’s own money. According to reports, announcement of Parmigiani’s recommendations were delayed by sales management for days at a time for no justified reason. In the Times article Parmigiani compares his actions to his time in the U.S. military, where the duty to disobey unlawful orders was instilled. Following his outrage over the Amkor incident, Parmigiani was fired from Lehman and found himself unable to find work at comparable Wall Street firms.

Despite assertions from regulators that insider trading is today prosecuted with greater frequency and accuracy, Mr. Parmigiani’s story speaks to what many authorities consider to be a system-wide epidemic. Such observers might argue that for every SEC conviction of a notorious inside trader – such as billionaire Galleon hedge fund manager Raj Rajaratnam – there is an instance such as that of Bernard Madoff, whose financial crimes went unprosecuted for years despite alarming warning signs.

To their credit, the SEC takes a contrary public stance on Parmigiani’s claims. Spokesman John Nester asserts that the SEC performed an extensive review of the claims against Lehman, reviewing “nearly 100,000 e-mails” and conducting numerous interviews with Lehman employees before determining that there “simply was not any evidence in this case to support the conclusion that Lehman, its employees or its clients had committed insider trading.” Morgenson further notes that for critics, the issue is not the number of SEC prosecutions of insider trading, but the typically minor targets and sums fined. The article notes two major exceptions: a recent $22 million dollar fine to Goldman Sachs, and a 2007 case against a researcher at Swiss bank UBS that resulted in charges against eight individuals, one of whom went to prison.

Parmigiani cites the 2008 financial crisis, coupled with Lehman’s subsequent insolvency, as the point at which the SEC’s interest in his case faltered. Independent analysis from Babson College professor of finance Steven Feinstein was presented by Parmigiani to the SEC in 2010. Feinstein’s report concluded that Lehman had engaged in “tipping” that directly changed the stock price and caused damages for investors. Yet Nester again argues in favor of the SEC’s inquiry with direct company sources over autonomous investigations such as Feinstein’s. “Our staff can and does interrogate witnesses, review contemporaneous documents, including e-mails, and scrutinize records,” says Nester. “That is evidence, and that is what determines whether insider trading has occurred.”

The degree to which investors and insiders alike rely upon the SEC to act as the most steadfast regulatory body it can be is apparent. As the stakes of investment grow only larger, the temptations of many such brokers and hedge managers toward gaining illegally obtained information loom large. It seems that whether Ted Parmigiani and like-minded critics of these regulatory efforts are correct in believing that the Commission is failing to correct preventable damages will be confirmed or denied by the SEC’s tenacity amidst growing concerns of insider trading, and as always in the passing of legislature that further regulates practices that place investors in unreasonable harm.

12234_corporate_blur.jpgToday, the SEC‘s new whistleblower program under the Dodd-Frank Act becomes effective, and is on the minds of many New York securities lawyers. These new rules were devised in such a way to provide an incentive for would-be whistleblowers to come forward and assist the SEC with investigations of possible securities law violations. Under these new rules, if an individual provides the SEC with original information about possible federal securities laws violations, and that information leads to a recovery by the SEC of $1 million or more, that individual would be entitled to receive up to 30% of the sanctions received by the SEC.

Under the new rules, internal reporting is encouraged, but it is not required. Individuals may instead go directly to the SEC. However, the value of internal compliance programs is addressed in the release, and there are incentives in place in the new rules to urge whistleblowers to report internally first.

There are also a few groups of individual who, for public policy reasons, are excluded from participation under the new rules. These include: compliance and internal audit personnel; officers, directors, trustees and partners who only discover the violations as a result of internal compliance procedures; public auditors who learn of the violations in the course of an engagement. However, these people may be eligible under certain circumstances, such as: they reasonably believe that disclosure is necessary to prevent the company from causing substantial injury to the property or financial interests of the company or investors; they reasonably believe that the company is impeding an investigation of the misconduct; or at least 120 days have passed since the initial internal report. Attorneys are also excluded, provided that they learned of the violations directly from attorney-client communications.

The new rules also provide substantial protection for individuals who do come forward, in order to prevent retaliation from their employer. Even if a whistleblower’s tip only relates to possible violations and the SEC investigation is unsuccessful, that individual is now protected from retaliation by a new express private right of action. Whistleblowers may sue their employer and seek remedies including two times their back pay and reinstatement. However, this protection is only for individuals who go directly to the SEC, not for those who report only internally.

Given these new rules, it is now much safer for individuals who have information about suspected federal securities law violations to come forward, and whistleblowers now have the opportunity to be compensated for their efforts in aiding the SEC. Yet it is important for potential whistleblowers to ensure that they proceed through the appropriate channels. For that reason, individuals who wish to contact the SEC to report securities violations should consult with an attorney before doing so to ensure that their rights are protected.

Malecki Law offers a substantial background in securities fraud and employment litigation, including whistleblower issues. If you believe that you may be a whistleblower, please call 212-943-1233 for a consultation.

The Wall Street Journal reported over the weekend about how one New York resident investor who lost his small stake in Washington Mutual once it was seized by the United States government in 2008 played a pivotal role in protecting the rights of similarly places investors. New York securities and whistleblower lawyers know there too be all too many investors in the same boat.

Nate Thoma, a self-taught trader who was wiped out when the U.S. government intervened in WaMu, discovered that he could recoup his losses by investing in trust preferred securities, which he bought through online trading account when they became available. The trust preferred securities essentially places the holder in the front of the line for any money distributed from WaMu’s estate once it emerged from bankruptcy. The Wall Street Journal reported that Mr. Thoma suspected hedge funds were buying substantially more blocks of these trust preferred shares while also owning the bank’s bonds.

And in December 2010, Mr. Thoma explained his theory to the Delaware bankruptcy court judge in the case In re Washington Mutual, Inc.: since the hedge funds were both bond holders in settlement talks, and owners of substantial swaths of trust preferred shares, were the hedge funds acting in the trust preferred holders’ best interest when they negotiated on their behalf?

Mr. Thoma’s argument, who was unrepresented for his objection and has no formal legal training, factored into the judge’s resulting decision to disallow settlement of the case, and led to a settlement between the hedge funds and individual investors.

Such individual investor intervention in bankruptcy proceedings is rare. However, Mr. Thoma’s intervention is instructive. It is important to keep a watchful eye over your investments. If you suspect that your wishes are not being considered by your broker, or your suspect that foul play is occurring in your account, you are best served to investigate the matter immediately.

The Wall Street Journal article can be found here.

The Delaware Bankruptcy Court’s decision can be found here.