In August 2016, the SEC announced that it would be awarding a $16.5 million whistleblower award in connection with a major enforcement action, one of numerous awards made by the SEC this summer that pushed the SEC whistleblower program over $100 million in its six years of existence. The unexpected twist in the story is that one of the whistleblowers responsible for providing the SEC with the information leading to its $55 million settlement with Deutsche Bank has stated he wants to decline his $8.25 million portion of the award, stating that he would rather have his award money “clawed back from the bonuses paid to the Deutsche executives” as opposed to being paid from Deutsche Bank itself.
The Scandal Beneath the Headline
According to the SEC release announcing the $55 fine against Deutsche, the bank overvalued a portfolio of derivative financial instruments in order to use the portfolio as leverage to obtain $98 billion in purchase protection against the risk of credit default losses. This type of mischaracterization through overvaluation and resulting over-leverage impacted the risk facing both creditors of the bank as well as the bank’s investors.
Eric Ben-Artzi, a risk manager at Deutsche, was one of three whistleblowers who reported the bank’s wrongdoing to regulators in 2010 and 2011. In an article Ben-Artzi wrote for the Financial Times, he stated that he noticed the improper accounting techniques carried out by his colleagues when he joined the bank in 2010, explaining, “Within a few months, though, I realised something was very wrong, and I called the internal hotline.”
Why Ben-Artzi Rejected the Award
Finding the internal hotline to be a dead end, Ben-Artzi then reported the fraud to the SEC, stating “the whistleblower award was a powerful incentive.” The reason he now is calling into question the receipt of the reward is his contention that the SEC should have imposed the $55 million fine on the executives that he worked with who undertook the fraud and not from the shareholders of the bank. He nevertheless stated that he would be happy to collect the whistleblowing award that he fought for should the SEC decide to extract the award from the executives themselves.
Pursuing an SEC Whistleblower Award
Ben-Artzi’s passionate article demonstrates that whistleblowing is not necessarily about receiving an award, but is also about making sure wrongdoing that victimizes shareholders and other investors is recognized and addressed by the SEC. There can be multiple positive motives for taking the courageous step to stand up to wrongdoing, and the hefty whistleblowing awards offered by the SEC are just one of those reasons. Bringing information about wrongdoing to the SEC can be tremendously lucrative, but it is also the right thing to do to help keep our financial markets fair. To learn more about how Kriendler & Associates can help in your SEC whistleblower matter, see here.
