Just a few months after announcing the first-ever award to an outside whistleblower, federal authorities may be on the verge of expanding the reach of whistleblower incentives even further.
Last week, Citadel, the Chicago-based investment and trading titan, reportedly asked to be granted whistleblower status for its role in uncovering allegedly illegal futures trading. It’s not hard to see why: whistleblower status would put Citadel in line for a substantial reward if the Commodity Futures Trading Commission (CFTC) wins its civil case against the accused trader.
Can a Corporation Be a Whistleblower?
Of course, the CFTC must first grant Citadel’s request. The agency’s rules state: “A company or other entity is not eligible to be a whistleblower.”
However, rules are subject to change. Dodd-Frank Act, which created the federal whistleblower program for financial entities, opened the door for corporate whistleblower status. It reads: “The term ‘whistleblower’ means any individual who provides, or two or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.”
While approval of Citadel as a whistleblower under the CFTC rules seems to be a long shot, Citadel must have some basis to believe that it is possible. Or, if nothing else, it may hope to use the current case as a way to win a change in the rules in the future.
It’s possible the CFTC and other federal authorities might be willing to let companies in on whistleblower rewards. Given the vigorous interest law enforcement has recently shown in stamping out corrupt business practices, it’s hard to imagine they would turn down companies that provide helpful information. Certainly, some companies could be powerful allies in uncovering unlawful practices given their unique access to large sets of market data and their ability to scrutinize that data in ways that individuals cannot.
Relentless Enforcement
At first glance, this may sound like something of a surprise. Whistleblower incentives were designed to encourage individuals to speak up about unlawful practices, not to reward billion-dollar hedge funds for reporting on competitors. And you could argue Citadel, as the largest market maker in options trading and one of the world’s biggest trading outfits, has plenty of incentive to help put a stop to market manipulation, even without the hope of receiving a bounty.
Both of those statements are true. And both miss a key point.
In the last few years we’ve seen federal law enforcement intensify its efforts to combat corrupt business practices. A big part of that has been the expansion of whistleblower awards. Since the Securities and Exchange Commission formed the Office of the Whistleblower in 2012, it’s seen the number of complaints skyrocket and awards have increased by roughly 30 percent.
Moreover, some regulatory authorities have been willing to pay bounties even to individuals who were involved in the wrongdoing themselves but later blew the whistle. While rewarding wrongdoers with large financial awards may seem odd, it highlights an important dynamic underlying whistleblower bounty programs—by offering large financial awards for valuable evidence, whistleblower programs change the risk-reward calculus for potential wrongdoers. With a greater likelihood of being exposed, those contemplating violating the law may well be deterred.
The Need to Build a Corporate Culture That Encourages Internal Reporting of Issues Is Greater Than Ever
In short, with the expansion of whistleblower awards the chances are greater than ever that someone—an employee, a contractor, even a competitor—may blow the whistle to a government entity. And that’s why it’s more important than ever to build and maintain a corporate culture that encourages early, in-house whistleblower reporting of ethics and compliance lapses, and that values honesty and integrity over short-term financial success.
With internal whistleblower reporting, organizations have the opportunity to address issues before they become major lawsuits, government investigations or public scandals. Without a culture that promotes speaking up internally—and without protections against retaliation for those who do speak up—the odds that someone will blow the whistle externally increases dramatically.
To learn more about a strong "early warning system"—from whistleblower hotlines and incident management systems to keys to fostering a "speak-up culture" so your organiztion is the first to know about potential issues—reach out to an ethics and compliance expert today.
