Erika A. Kelton

"I was very concerned that investors were being cheated out of millions of dollars and that the company was misleading them about its actions," the client said when the award was announced. "Deception had become an accepted business practice." Andrew Ceresney, the director of the SEC's Division of Enforcement, said the whistleblower "came to us with information about an ongoing fraud that would have been very difficult to detect." Kelton said federal regulators "never would have known about this fraud otherwise, and the scheme to cheat investors likely would have continued indefinitely."

The Commission's order found that the claimant, a foreign resident, had voluntarily provided original information that led to the successful enforcement of a covered action and related actions. It fixed the award as a share of the sanctions collected in those actions, a share expected to yield between $30 million and $35 million.

Anyone, Anywhere

The same order explained why a claimant abroad could be paid at all. On August 14, 2014, the Second Circuit had held in Liu v. Siemens that Dodd-Frank's anti-retaliation provision "does not protect a foreign worker employed abroad by a foreign corporation where all events related to the disclosures occurred abroad." The Commission did not find that decision controlling, because "the whistleblower award provisions have a different Congressional focus than the anti-retaliation provisions."

The Commission held that "there is a sufficient U.S. territorial nexus whenever a claimant's information leads to the successful enforcement of a covered action brought in the United States, concerning violations of the U.S. securities laws, by the Commission." When those connections exist, the order said, "it makes no difference whether, for example, the claimant was a foreign national, the claimant resides overseas, the information was submitted from overseas, or the misconduct comprising the U.S. securities law violation occurred entirely overseas."

Under Dodd-Frank, an award runs from 10 to 30 percent of the money collected when the sanctions exceed $1 million, and it is paid from an investor protection fund financed by sanctions that securities-law violators pay. Sean McKessy, chief of the SEC's Office of the Whistleblower, said the award "shows the international breadth of our whistleblower program as we effectively utilize valuable tips from anyone, anywhere to bring wrongdoers to justice."

Two Voices, One Record

On January 21, 2022, the Commission announced an award of approximately $37 million to two joint whistleblowers. Both were Kelton's international clients, and their joint submission had given Enforcement staff "key evidence that significantly contributed to the staff's investigation and the Commission's charges."

They "helped the staff understand the evidence," which led the staff to additional valuable information, and they "provided ongoing assistance as the staff's investigation progressed." "The SEC was unaware of the wrongdoing until my clients stepped forward," Kelton said. "Despite the risk to their careers, they provided information and assistance that were instrumental in the SEC's enforcement action." In a joint statement, the two clients said: "We found it heartening that the SEC listened to us and quickly began to investigate."

The award reached across two proceedings: the Commission's own action and an action by another agency based on the same original information, for which the Commission set a related-action award "in view of the same considerations." Treating the pair as joint whistleblowers, the order said, "has not impacted the net total award percentage granted to Claimant." Unless they asked in writing within ten calendar days for a different division, each would receive half.

Advancing an Examination

A June 4, 2024 final order awarded another of Kelton's clients twenty-three percent of the sanctions collected, an award of $3.7 million. In setting it, the Commission took into account that the client had "persistently raised concerns internally in an effort to remedy the misconduct," had taken "personal and professional risk in coming forward to the Commission" and had "suffered significant hardships as a result of Claimant's reporting." "The whistleblower took enormous risks when deciding to help the SEC with their investigation, including termination," Kelton said.

The order found the client's information new and helpful to both the SEC's examination of the respondent and the investigation that followed. It helped examination staff frame additional requests for information to the respondent, and the results supported findings in a referral to the Division of Enforcement. The client sat for a voluntary interview and kept assisting during the investigation, and the information supported findings in the Commission's settled administrative order.

Some attachments to the client's tip were marked privileged and confidential. When examination staff noticed the markings, the Commission's Office of Market Intelligence sequestered the tip for a privilege review, and the examiners worked from the allegations the client had written in answer to the tip form's questions. After the review they received a redacted version with the privileged attachments removed, and examination staff stated that this version "meaningfully assisted" the examination and "played a significant role in supporting" findings in the referral.

The False Claims Foundation

Kelton was an associate at Paul, Weiss, Rifkind, Wharton & Garrison from 1987 to 1994. Before the SEC program existed, she was already building cases under the False Claims Act, which lets a private whistleblower sue on the government's behalf and share in what is recovered. In 1995 Michael Lissack, a former investment banker, sued Wall Street banks in federal court in Manhattan over "yield burning," inflating the prices of Treasury securities that municipalities bought with tax-exempt bond proceeds, which held the yield within federal tax limits while the banks kept the markups. In April 2000 seventeen investment banks agreed to pay about $140 million. "This case has changed the way Wall Street and municipalities do business," said Kelton, one of the whistleblowers' lawyers. In all, the yield-burning case returned more than $200 million to the U.S. Treasury.

She represented John Kopchinski, a West Point graduate and Gulf War veteran who worked for Pfizer for eleven years as a sales representative in Florida. His 2003 qui tam lawsuit, which the government joined, alleged that Pfizer promoted the painkiller Bextra for uses and doses beyond what the Food and Drug Administration had approved and paid doctors kickbacks to prescribe and endorse it for those uses; Bextra was withdrawn from the market in 2005. On September 2, 2009, Pfizer agreed to pay $2.3 billion, $1.8 billion of it concerning Bextra, and Kopchinski was awarded $51.5 million from the federal recovery. "In the Army, I was expected to protect people at all costs," he said. "At Pfizer I was expected to increase profits at all costs, even when sales meant endangering lives. I couldn't do that."

In the GlaxoSmithKline case she was lead attorney for Thomas Gerahty, a former senior marketing development manager, and Matthew Burke, a former regional vice president. Their qui tam case, filed in federal court in Boston in early 2003, alleged nationwide schemes to push sales of Advair, Wellbutrin, Imitrex and other drugs for unapproved uses, improper financial inducements, and misrepresentation of the drugs' safety and efficacy. On July 2, 2012, GlaxoSmithKline agreed to pay $3 billion. The civil settlement of their case and a separate Colorado lawsuit came to $1.017 billion, and one of the criminal charges, concerning Wellbutrin, rested on information from their lawsuit. "We thought when we first filed our case that it would be resolved in a few years," Gerahty said. It took more than nine.

Kelton is a partner in the Washington office of Phillips & Cohen. She graduated from the University of California, Berkeley, School of Law, where she was articles editor of the California Law Review, and with her partner Claire M. Sylvia she teaches whistleblower law at Berkeley Law and has taught it at New York University School of Law.

Anonymity as Craft

In July 2004, years before the SEC program began, a confidential informant whose Internal Revenue Service whistleblower claim Kelton handled testified before the Senate Finance Committee as Mr. ABC, describing original information given to the IRS about "significant and ongoing tax fraud involving major Wall Street firms." She has consulted with Congress, the SEC, the Commodity Futures Trading Commission and the IRS on the establishment and workings of their whistleblower programs.

Under the SEC's rules, a whistleblower may report anonymously only through a lawyer, who represents the client in both the tip and the award claim. Counsel certifies having verified the client's identity, reviews the signed tip form for completeness and accuracy, must be able to produce the original within seven calendar days of the Commission's request, and serves as the agency's point of contact while the claimant remains unnamed. After a successful action with sanctions above $1 million, the Office of the Whistleblower posts a notice of covered action, and a claim must be filed within ninety days; a related-action claim must also tie another authority's proceeding to the same original information. The claimant's identity is disclosed to the Commission and verified before any payment, and the law requires the agency to protect its confidentiality.

Kelton's three SEC matters each demanded a distinct showing: international eligibility, coordination of two joint claims across related actions, and proof that new information materially advanced an existing examination. Each concluded with an award — and with the client's identity intact.