White Collar

Whistleblower Rights and Protections: Safeguarding Those Exposing Microcap and Small Cap Fraud

By: Lucosky Brookman
Whistleblower Rights and Protections: Safeguarding Those Exposing Microcap and Small Cap Fraud

Robust whistleblower protections enacted over the last two decades exist to safeguard insiders or employees who courageously expose fraud or misconduct occurring within microcap and small capitalization public companies. Understanding these rights is essential for whistleblowers to come forward safely.

Heightened Risks of Misconduct at Microcap and Small Cap Companies

Due to their typically limited internal controls, oversight, and regulatory scrutiny compared to larger firms, smaller publicly traded companies often inherently present increased opportunities for financial misrepresentation, accounting manipulation, self-dealing, or other misconduct by corporate insiders and executives. This necessitates credible whistleblowers courageously coming forward to protect investors, shareholders and the general public from harm.

Overview of Relevant Federal Whistleblower Programs and Protections

Various federal statutes and regulations contain enhanced provisions specifically designed to shield whistleblowers from retaliation or adverse actions when reporting suspected wrongdoing or misconduct, including:

  • - Sarbanes-Oxley Act - Contains protections for whistleblowers alleging securities law violations, accounting or audit fraud, or other corporate fraud.
  • - Dodd Frank Act - Prohibits retaliation by employers against individuals who report suspected violations of securities laws, commodities laws, or the Foreign Corrupt Practices Act.
  • - False Claims Act - Safeguards whistleblowers disclosing any type of fraud against the federal government, covering a wide range of misconduct.
  • - SEC & CFTC Whistleblower Rules - Regulations from these agencies prohibit retaliation and provide potential monetary awards related to violations of laws they enforce.

Key Protections Afforded to Whistleblowers Under Relevant Laws

Several core protections are afforded to whistleblowers under these federal fraud and misconduct reporting programs that are important to understand:

Anonymity - Whistleblowers have the option to report fraud or misconduct to regulatory and enforcement authorities confidentially in order to better limit risks of employer retaliation. Confidential and anonymous reporting to the SEC and CFTC in particular may still qualify the whistleblower for a monetary award.

Anti-Retaliation - Employers are strictly prohibited by law from punishing or taking adverse actions against whistleblowers in connection with them having reported misconduct or cooperated with an investigation. Violations open employers to major liability.

Monetary Awards - Most federal whistleblower programs allow eligible whistleblowers to receive sizable monetary awards representing a percentage of any sanctions and ill-gotten gains ultimately imposed on wrongdoers based on the unique information provided by the whistleblower.

Those Aware of Microcap Fraud Should Strongly Consider Reporting It

In sum, those aware of concerning activity or fraud occurring at microcap public companies would be wise to strongly consider reporting it to regulators in order to qualify for robust whistleblower protections against retaliation. Experienced whistleblower counsel can provide invaluable assistance to safely and effectively bring corporate misconduct to light.