U.S. SEC awards $2.5 million to Orthofix Medical's external whistleblowers

WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission (SEC) on Tuesday issued a joint $2.5 million award to two external analysts who flagged financial reporting abuses by Orthofix Medical Inc, the agency and the lawyers for the analysts said in separate statements.

The case is unusual because company whistleblowers are typically more likely to be insiders and legal questions have been raised in the past as to whether outsiders using public information can qualify for an award under the SEC’s landmark whistleblower program introduced following the 2007-09 financial crisis.

“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 Whistleblower Jane Norberg said in a statement.

In 2017, the Texas-based medical device maker, formerly known as Orthofix International NV, paid $8.25 million to settle here SEC accounting fraud charges. Between 2011 and 2013, the company materially inflated its earnings by distributing more products than its customers needed, known as "channel stuffing," among other inappropriate accounting practices, the SEC said in 2017.

On Tuesday, the agency said it had issued the bounty but declined to name the company or individuals concerned.

Jordan Thomas, an attorney for the whistleblowers with law firm Labaton Sucharow, said the SEC reward resulted from the Orthofix International 2017 case.

In 2012, Orthofix International first caught the attention of the analysts, who declined to be identified. They regularly swapped notes on company numbers they thought looked odd and subsequently tipped off the regulator about irregularities in Orthofix International's filings, Reuters reported here in 2017.

“These analysts could have ignored their hunches and remained silent—like so many others on Wall Street,” said Thomas.

Reporting by Katanga Johnson; Editing by Marguerita Choy