- March 25, 2014
- Labaton Sucharow
After the revelation in 2008 that Bernard Madoff’s “wealth management” business was actually a colossal Ponzi scheme, Madoff’s victims and the public immediately asked: “Who else in the Madoff organization knew and, if they knew, why didn’t they come forward?” On Monday, that question was answered, at least in part, by a jury considering criminal charges against five former Madoff employees, including his longtime secretary, two computer programmers and his director of operations for investments. The jury found all five defendants guilty on 33 total charges, establishing that these employees were aware of, and complicit in, Madoff’s long-running fraud. In the case of the computer programmers, for example, the U.S. Attorney Office presented evidence that they created software to automatically generate fabricated account statements, while other defendants helped create a fake set of books and records that was provided to the SEC.
The Madoff verdict is yet another lesson to employees that complicity in fraud comes with enormous personal and professional risks, even for non-management employees like Madoff’s former secretary. Had any of these former employees chosen to step forward and blow the whistle on Madoff, the outcome for both themselves and Madoff’s investors would have been far different: the employees would almost certainly not be facing lengthy prison terms (as they are now) and investors would have been spared at least some of their devastating losses.
With the advent of the SEC Whistleblower Program, the choices for employees like those in the Madoff case are even more blunt, since blowing the whistle can now not only help individuals avoid personal liability for securities violations, but may also allow them to obtain substantial monetary awards if they voluntarily provide original information that leads to a successful SEC enforcement action (for more information on eligibility please see our SEC Whistleblower Program Handbook). Critically, the rules of the SEC Whistleblower Program do not automatically exclude employees from eligibility merely because law enforcement agencies have already begun to investigate their company: while any disclosure of information must be voluntary to give rise to a monetary award, that disclosure can be made after the SEC or another regulator is “on the scene.” And, even individuals with potential civil liability may be eligible for monetary awards under the program, as long as they are not criminally convicted for related misconduct. In other words, it may not be too late for an employee to become a whistleblower – and perhaps avoid being viewed as a co-conspirator – even if the company is already under the scrutiny of the SEC or other regulators. Becoming a whistleblower is not easy, and should not be undertaken lightly, but the Madoff case shows that staying silent also carries huge potential costs. No doubt the Madoff defendants are second-guessing their decisions today.
