Whistleblowers risk their livelihoods and can face financial ruin when they step forward to expose corporate fraud. In recognition of this fact, the SEC Whistleblower Program offers substantial monetary awards to whistleblowers. The current financial situation of an SEC whistleblower who turned down his award highlights the necessity of these awards and showcases why whistleblowers should not hesitate to accept awards.
According to the Financial Times report, Eric Ben-Artzi, one of three whistleblowers who exposed large-scale false accounting at Deutsche Bank, is “going broke.” In 2016, Ben-Artzi was awarded $8.25 million by the SEC but turned down the whistleblower award. Now, Ben-Artzi says he “would need a near miracle to avoid bankruptcy at this point.”
In 2015, Deutsche Bank settled SEC charges for the “overvaluation of certain Leveraged Super Senior (‘LSS’) trades during the height of the global financial crisis,” and agreed to pay a $55 million penalty. According to Financial Times, Ben-Artzi was one of three ex-Deutsche Bank employees who, in 2010-2011, “independently approached the SEC, alleging that the bank had hid billions of dollars of losses.” As a qualified SEC whistleblower, Ben-Artzi was entitled to a monetary award of 10-30% of the $55 million.
In 2016, Ben-Artzi rejected his $8.25 million whistleblower award in protest of the SEC’s alleged failure to punish the executives responsible for the fraud he exposed. Ben-Artzi claims that the SEC’s penalty hurt the shareholders of Deutsche Bank, who were the victims of top executives’ misconduct. At the time, Ben-Artzi wrote: “although I need the money now more than ever, I will not join the looting of the very people I was hired to protect.” Ben-Artzi further alleged that the reason Deutsche executives were not punished is that “Deutsche’s top lawyers ‘revolved’ in and out of the SEC before, during and after the illegal activity at the bank.” For example, “Robert Khuzami, Deutsche’s top lawyer in North America, became head of the SEC’s enforcement division after the financial crisis,” according to Ben-Artzi’s 2016 article.
Ben-Artzi’s rejection of the award raises concerns about the relationship between the SEC and lawyers of powerful financial players like Deutsche Bank. However, his protest also suggests a possible misconception about the SEC Whistleblower Program. As the SEC explains, “all payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards.” Simultaneously, sanctions generated by whistleblower disclosures are earmarked for the real victims of the fraud, including innocent shareholders. To date, SEC whistleblower disclosures have led to the return of over $750 million to victims of corporate fraud.
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The Deutsche Bank whistleblower who gave up $8m is going broke.