BuckleySandler’s Sporkin: SEC’s Bounty Program The Next False Claims Act

Thomas Sporkin spent the last nineteen years at the Securities and Exchange Commission’s (SEC) Enforcement Division.

He knows a thing or two about the SEC’s bounty program.

And he predicts that it will be as lucrative to whistleblowers as the False Claims Act.

Sporkin, now a partner at BuckleySandler in Washington, D.C., says that all signs are that the bounty program will soon start bringing in the big bucks.

“There is one case that could indicate that the same type of money could be expected. Look at the AXA Rosenberg case,” Sporkin told Corporate Crime Reporter in an interview last week.

“There was a case brought against the entity claiming that the firm had made a misstatement about an algorithm they were using to invest their clients’ money. In fact, where they said they had made profits – that wasn’t the case. The SEC secured a $200 million settlement in that case.”

“A senior executive at the firm came to the SEC to report what was happening. That person received cooperation credit. This was maybe a year before the bounty program. Had this person come in through the whistleblower program, and the SEC had received a $200 million judgment, the executive likely could have claimed a $60 million bounty. The bounty can be 10 percent to 30 percent.”

“If you look at the AXA Rosenberg case you can easily conclude – the SEC would likely not have found out about it but for this executive coming forward.”

Sporkin says that under the SEC’s whistleblower program, there has been a “noticeable uptick in quality information.”

“Surprisingly, the SEC was not overwhelmed with a lot of noise – people trying to win the lottery by submitting anything they could think of,” Sporkin said. “The result has been positive. A lot of good information has come in and SEC resources were not overwhelmed.

“Prior to the whistleblower program, the SEC saw maybe saw two dozen quality tips a year. Now, it’s probably closer to two a day.”

If Sporkin’s hunch is right. we are talking about 700 to 800 quality tips a year.

What percentage of those will result in whistleblower awards?

“It’s hard to tell,” Sporkin says. “Some of the tips, even though they are quality tips, may relate to open investigations. Others might relate to cases that the staff chooses not to investigate. So, it’s hard to tell what the numbers will be down the road.”

“If you double the number of investigative attorneys in the Division of Enforcement, you could probably double the number of cases. There may be some fall off in quality toward the tail, but there are enough pieces of information for an enforcement staff twice the size of the current one.”

What is the current staffing?

“The Whistleblower Office is at about fourteen or fifteen attorneys,” Sporkin says. “The Office of Market Intelligence, including the Whistleblower Office, is at about fifty. Enforcement overall? Not sure. It’s is in the hundreds of investigative attorneys.”
Sporkin’s father, Stanley Sporkin, headed the SEC’s Enforcement Division in the 1970s.

The elder Sporkin used to chop at the top – go after the big players, sending a deterrent message from the top down.

We asked the younger Sporkin about the increasing criticism of the current SEC and its failure to go after the big Wall Street players.

He quickly defended the SEC’s top brass, including SEC Enforcement chief Robert Khuzami.

“Rob Khuzami is similar to my father in that respect,” Sporkin said. “He wants to make sure that the person responsible for a fraud is brought to justice. And he wants to go up to the top of the organization. He has shown that in several of the cases filed.”

“Look at his record filing against top executives – there are a lot. Angelo Mozilo and Daniel Mudd just to name two. Those are cases in which he went to the top. But he brings cases right down the line. He has an impressive track record in that regard.”

[For the complete q/a format transcript of the Interview with Thomas Sporkin, see 26 Corporate Crime Reporter 35(12), September 11, 2012, print edition only.]

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