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Agencies’ Joint Antitrust Focus May Spur Whistleblower Tips

Agencies’ Joint Antitrust Focus May Spur Whistleblower Tips

Published: 12.9.2020

On Oct. 14, Michael Murray, a deputy assistant attorney general in the U.S. Department of Justice’s Antitrust Division, gave a keynote speech addressing the intersection of the antitrust laws and the financial sector of our economy.[1] Murray explained that the financial markets and the financial services industry are particularly ripe for anti-competitive conduct because of the rapid transformation they are undergoing.[2]

While innovation often lowers costs and increases the performance of financial products and services for consumers, it may also drive market participants to attempt to protect their positions by engaging in schemes to collude and manipulate.[3]

Murray highlighted the importance of U.S. Securities and Exchange Commission’s and Antitrust Division’s collaboration in policing such misconduct.[4] He noted the division’s support for recent SEC regulatory reforms and also underlined the agencies’ first-ever memorandum of understanding executed this past summer.[5]

Enhancing the already strong working relationship between the SEC and Antitrust Division, the memorandum establishes a framework for the agencies’ discussion and assessment of matters affecting competition in the securities industry.[6] The memorandum opens up lines between the agencies for regular communication and review of law enforcement and regulatory concerns related to such issues.[7]

Murray emphasized that cooperation between the SEC and Antitrust Division is important due to the complexity of the financial exchange and securities markets and the significance of preserving competition in these markets.[8] Competition in these markets is integral not only to spurring innovation, but also maximizing consumer benefits.[9]

Murray’s speech and the agencies’ memorandum mark only the latest steps in the government’s quest to root out fraud and manipulation schemes in the financial exchange and securities markets. Over the past few years, there have been several notable prosecutions in this arena.

The SEC and Antitrust Division have previously worked together in securing the convictions of 17 individuals and over $600 million for manipulation in the municipal bonds market.[10] The agencies also partnered in securing the conviction of eight individuals and $1.3 billion for several banks’ and traders’ participation in a scheme to manipulate Libor.[11]

Likewise, the DOJ charged five companies and six individuals in connection with an investigation into unlawful manipulation of benchmark foreign exchange rates.[12] On May 20, 2015, Citicorp, JPMorgan Chase & Co., Barclays PLC, and The Royal Bank of Scotland PLC pled guilty and agreed to collectively pay more than $2.5 billion in criminal fines for their participation in this scheme.[13] BNP Paribas USA Inc. later pled guilty as well and agreed to pay a $90 million criminal fine.[14]

On Jan. 4 and Jan. 12, 2017, the DOJ announced plea agreements for two former traders in connection with their role in manipulating emerging-market foreign exchange prices.[15] And, on Sept. 17, 2020, Akshay Aiyer, a former currency trader at JPMorgan, was sentenced to serve eight months in jail and ordered to pay a $150,000 criminal fine for his role in the conspiracy.[16]

Finally, two broker dealers and two executives pled guilty to criminal charges stemming from a conspiracy to borrow prerelease American depository receipts from U.S. depository banks at artificially suppressed rates.[17]

In 2019, the Industrial and Commercial Bank of China Financial Services LLC pled guilty and was ordered to pay a criminal fine of over $3 million, and Banca IMI Securities Corp. pled guilty and was required to pay a more than $1 million fine.[18] Executives Larry D. Meyers, the former head of the securities lending desk at Banca IMI Securities, and Peter Volino, a former vice president at ICBCFS, also pled guilty to charges in connection with DOJ’s probe.[19]

The SEC and Antitrust Division’s recent doubling down on enforcement efforts concerning this type of wrongdoing indicates that similar misconduct continues to occur. This signaling, along with the agencies’ identification of market manipulation as an enforcement priority, is an important consideration in forecasting what kinds of tips, complaints and referrals may be submitted to the SEC’s whistleblower program in the near term.

The whistleblower program has made clear that it will reward whistleblowers who come forward with information regarding violations of the federal securities laws — especially those with information concerning one of the agency’s enforcement priorities.

Indeed, the program’s regulations require the SEC to consider whether a tip concerns an enforcement interest in deciding whether to increase a whistleblower’s award.[20] Rule 21F-6 of the Securities Exchange Act directs the SEC to “assess its programmatic interest in deterring violations of the securities laws by making awards to whistleblowers who provide information that leads to the successful enforcement of such laws.”[21]

In making this assessment, the SEC may take into account, among other things:

  • The degree to which an award enhances the commission’s ability to enforce the federal securities laws and protect investors;
  • The degree to which an award encourages the submission of high quality information from whistleblowers by appropriately rewarding whistleblowers’ submission of significant information and assistance, even in cases where the monetary sanctions available for collection are limited or potential monetary sanctions were reduced or eliminated by the commission because an entity self-reported a securities violation following the whistleblower’s related internal disclosure, report or submission;
  • Whether the subject matter of the action is a commission priority, whether the reported misconduct involves regulated entities or fiduciaries, whether the whistleblower exposed an industrywide practice, the type and severity of the securities violations, the age and duration of misconduct, the number of violations, and the isolated, repetitive, or ongoing nature of the violations; and
  • The dangers to investors or others presented by the underlying violations involved in the enforcement action, including the amount of harm or potential harm caused by the underlying violations, the type of harm resulting from or threatened by the underlying violations, and the number of individuals or entities harmed.[22]

On Dec. 1, the commission awarded $6 million to two anonymous whistleblowers who provided original information to the SEC in connection with successful enforcement actions.[23] The commission applied the above award criteria in issuing its order in that case and, in doing so, noted the “high law enforcement interest involved in [that] matter” in justifying the amount awarded.[24]

The publicity surrounding the SEC’s identification of anti-competitive misconduct as an enforcement priority will likewise prompt an increase in tips, complaints and referrals in this arena.

Whistleblowers often step forward to expose fraud at great risk to their careers and reputations. That a whistleblower with information concerning market manipulation may see an increase in their potential award provides additional incentive for them come forward, knowing that they may reap some financial benefit along with obtaining the satisfaction of having done the right thing.

Moreover, individuals submitting SEC whistleblower tips tend to be sophisticated individuals well-versed in economic and securities industry trends.

News from the SEC on recently resolved market manipulation cases or increased enforcement efforts with DOJ may very well nudge such individuals to come forward. Reporting on these issues may also make potential whistleblowers aware that the practices of their employer or some other entity, while commonplace or seemingly innocuous, are actually violative of the federal securities laws.

And reporting on the success of the SEC whistleblower program, and the whistleblower awards issued under it, will demonstrate to those thinking about blowing the whistle that there is an effective and efficient vehicle for submitting concerning information to the appropriate authorities.

Zac Arbitman is a senior associate at Youman & Caputo LLC.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Dave Simpson, DOJ Antitrust Deputy Tells Of Financial Sector ‘Lean In’ Policy, Law360 (Oct. 14, 2020) available at https://www.law360.com/articles/1319815/doj-antitrust-deputy-tells-of-financial-sector-lean-in-policy.

[2] Michael Murray, The Muscular Role for Antitrust in Fintech, Financial Markets, and Banking: The Antitrust Division’s Decision to Lean In, at 2 (October 14, 2020), available at https://www.justice.gov/opa/speech/deputy-assistant-attorney-general-michael-murray-delivers-remarks-university-michigan-law.

[3] Id. at 16-18.

[4] Id. at 17-18.

[5] Id. at 17.

[6] Memorandum of Understanding between the Antitrust Division, Department of Justice, and the Securities and Exchange Commission relative to Cooperation with Respect to Promoting Competitive Conditions in the Securities Industry (June 22, 2020), available at https://www.sec.gov/files/ATR-SEC%20MOU-06-22-2020.pdf.

[7] Id.

[8] Michael Murray, The Muscular Role for Antitrust in Fintech, Financial Markets, and Banking: The Antitrust Division’s Decision to Lean In, at 18 (October 14, 2020), available at https://www.justice.gov/opa/speech/deputy-assistant-attorney-general-michael-murray-delivers-remarks-university-michigan-law.

[9] Id.

[10] Id. at 8.

[11] Id.

[12] Former Foreign Exchange Trader Sentenced To Prison For Price Fixing And Bid Rigging (Sept. 17, 2020), available at https://www.justice.gov/opa/pr/former-foreign-exchange-trader-sentenced-prison-price-fixing-and-bid-rigging.

[13] Id.

[14] Id.

[15] Id.

[16] Id.

[17] Michael Murray, The Muscular Role for Antitrust in Fintech, Financial Markets, and Banking: The Antitrust Division’s Decision to Lean In, at 9 (October 14, 2020), available at https://www.justice.gov/opa/speech/deputy-assistant-attorney-general-michael-murray-delivers-remarks-university-michigan-law.

[18] Second New York Broker-Dealer Pleads Guilty To Rigging Bids for Financial Instruments in Violation of Antitrust Law (June 14, 2019), available at https://www.justice.gov/opa/pr/second-new-york-broker-dealer-pleads-guilty-rigging-bids-financial-instruments-violation.

[19] Former Financial Services Executive Pleads Guilty to Rigging Bids for Financial Instruments in Violation of Antitrust Law (Nov. 14, 2019), available at https://www.justice.gov/opa/pr/former-financial-services-executive-pleads-guilty-rigging-bids-financial-instruments-0; Former Financial Services Executive Pleads Guilty to Rigging Bids for Financial Instruments in Violation of Antitrust Law (June 27, 2019), available at https://www.justice.gov/opa/pr/former-financial-services-executive-pleads-guilty-rigging-bids-financial-instruments.

[20] 17 C.F.R. § 240.21F-6.

[21] 17 C.F.R. § 240.21F-6(a)(3).

[22] 17 C.F.R. § 240.21F-6(a)(3)(i-iv).

[23] Order Determining Whistleblower Award Claims, File No. 2021-11 (S.E.C. December 1, 2020), available at https://www.sec.gov/rules/other/2020/34-90537.pdf.

[24] Id.

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