The US Securities and Exchange Commission (SEC) awarded $2.5m last week to two external analysts who exposed Orthofix Medical for financial wrongdoing. A Jurist report notes that normally, under the SEC whistle-blower programme, internal whistle-blowers get rewarded for reporting their company’s fraudulent practices.
However, in this case, external analysts were rewarded under the same whistle-blower programme for using public information to report wrongdoing. The question of whether external whistle-blowers qualify for the same rewards as their internal counterparts is a legal question the programme has faced since its establishment after the 2007-2009 financial crisis.
In 2017 the SEC reported that the Texas-based medical device company agreed to pay $14m to settle the charges. One of the company’s fraudulent practices took place between 2011 and 2013 when the company inflated its earnings by distributing more devices than its customers needed, in a process called “channel stuffing”. The analysts first noticed filing irregularities in 2012.
In addition to the tip, the whistle-blowers assisted in the investigation, saving the SEC time and resources. “Detailed analysis by outsiders of companies can have a significant impact on the enforcement of the federal securities laws,” Chief of the Office of the Whistle-blower Jane Norberg said.
[link url="https://www.jurist.org/news/2020/09/sec-awards-2-5-million-to-orthofix-medical-whistleblowers/"]Full Jurist report[/link]