The Securities and Exchange Commission announced this week that awards from its whistleblower program had surpassed $100 million—thanks to a $22 million award announced the same day. That award was the largest since the program’s inception in 2011. And while this is all newsworthy, it’s important to note that high-ranking SEC officials are giving the sense that a major transformation is underway.
SEC Chair Mary Jo White said the whistleblower program has been a game changer in how it rewards corporate whistleblowers who come forward with unique and helpful tips leading to a recovery via an enforcement action. This reward “carrot” of 10% to 30% of the amount recovered gets all of the headlines even though, in reality, there have been relatively few awards (33) since the program’s inception. Some might argue that the relatively small number could lead to a drop in tips as whistleblowers assess their odds compared with risks of retaliation, ridicule or victimization. Nevertheless, the SEC has reviewed more than 14,000 tips in the same time period, which would seem to suggest that the motives of whistleblowers may stem from rewards other than the obvious financial ones. The SEC certainly believes this to be true and has aggressively pursued cases where the whistleblowers have also alleged retaliation.
Whistleblowers Have Been Transformative
In fact, Andrew Ceresney, Director of the SEC Division of Enforcement, said the following in the press release announcing this $100 million milestone:
“The SEC whistleblower program has had a transformative impact on the agency, enabling us to bring high quality enforcement cases quicker using fewer resources. The ultimate goal of our whistleblower program is to deter securities violations and paying more than $100 million in whistleblower awards demonstrates the value that whistleblowers have added to our enforcement program.”
Compliance Lessons for the Post Transformation Whistleblower Program
The SEC’s whistleblower program and similar programs managed by enforcement agencies seem to be here to stay and are generating tremendous numbers of tips. The questions compliance professionals should ask themselves include, “Why are there whistleblower programs? Shouldn’t employees have reported these issues internally to a manager or the helpline system?”
While in many instances the issues were reported internally, some reporters might have gone directly to the SEC or other enforcement agencies. It’s important to note that there is still some debate in the courts about whether issues need to have been reported internally first or to the SEC first in order to qualify for an award.
Compliance officers need to make sure that their organization’s culture supports internal reporting. How do you do this?
- Have a strong culture that supports “doing the right thing.” Exactly what that means should be communicated through awareness training (live and online) as well as foundational documents like a robust code of conduct and policies. This includes code of conduct training as well as non-retaliation training.
- Part of “doing the right thing” means that every employee knows that the organization expects and encourages employees to come forward and report misconduct.
- Managers and supervisors—the first line of defense—should know how to listen, how to treat reporters with respect and confidentiality and how to document, escalate and report the issue, possibly through a case management system.
- This case management needs to happen in real time so employees don’t think the organization is not taking the report seriously.
- For employees uncomfortable going to a manager or supervisor, or where the manager or supervisor may be the source of the misconduct, employees need to know how and where to make reports to the organization’s helpline (possibly anonymously when and where appropriate and allowed by law).
- In every instance, the organization should ensure employees have reason to believe the organization will not tolerate – and will discipline – any form of retaliation when an employee, in good faith, reports misconduct.
Whistleblowers Are Not the Enemy
The takeaway for all organizations should be that whistleblowers should not be seen as adversaries. Even the nickname “whistleblower” carries some negative connotations—and it shouldn’t. The organization should want to know as soon as possible when any misconduct occurs. In addition to prevention of misconduct, this detection of wrongdoing should be a goal of an effective compliance program. The aim is to keep the whistleblower “inside the tent” to be addressed from within; to address the misconduct as soon as possible, ensure that mitigation is implemented when appropriate, and in the case of serious misconduct, consider whether the issue needs further investigation and possibly self-reporting to the appropriate enforcement agency.
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