The US Securities and Exchange Commission has long hailed its whistleblower program as a success, with the former SEC chair, Mary Jo White, calling it a “game changer” in enforcement and current Chairman Jay Clayton saying “the strength of our whistleblower program is a critical component in our investor protection toolbox.”
So it makes no sense for the SEC to adopt certain proposed rules (PDF: 837 KB)that would inject into the program uncertainty for whistleblowers and discourage those with detailed knowledge of massive fraud from stepping forward. Yet that’s what the SEC is considering doing by arbitrarily cutting awards for the most valuable whistleblowers to less than what they should be entitled to under the statute and current rules.
Rewards are a major reason for the SEC whistleblower program’s success. They have ranged from $50,000 to $50 million. Continue reading →
With limited time, corporate directors are accustomed to monitoring firms by using aggregated information that is supplied by firms’ management. Nearly every task conducted by a board of directors involves data curated by employees working for a firm’s CEO. A critical challenge for directors is to be informed of important situations that may have been lost in data aggregation or that may have been selectively not reported. Indeed, this is why firms with stellar directors and high-quality external auditors still have major public debacles. One way a corporate director can obtain unfiltered information regarding a firm’s operations and potential problems within a firm is by reviewing reports made by employees through internal reporting systems (also known as internal whistleblowing systems). The problem with this solution is that there have been differing views and understandings as to how to appropriately manage these systems and interpret these submitted reports—until now. Continue reading →
Over 3,000 commenters submitted letters to the Securities and Exchange Commission (“SEC”) concerning the agency’s recently proposed amendments to its whistleblower rules. This response reflects the perceived importance of the SEC’s proposal to companies and employees.
The most controversial of the proposed amendments would allow the SEC discretion to decrease the size of an award if it determines that the award would otherwise be too large to advance the goals of the whistleblower program. Under current rules, if a whistleblower qualifies for an award, the SEC determines the size of the award by considering a number of specified factors that can increase or decrease the award amount within the range of 10 to 30 percent of the monetary sanctions recovered. To decrease the amount of an award, the SEC can consider only the culpability of the whistleblower; whether the whistleblower unreasonably delayed reporting the misconduct to the SEC; and whether the whistleblower interfered with the company’s internal compliance and reporting systems.Continue reading →
The Court of Appeal reversed the High Court’s decision and found that all of the interviews conducted by ENRC’s external lawyers were covered by litigation privilege, and so too was the work conducted by the forensic accountancy advisors for the books and records review. The Court of Appeal found that ENRC did in fact reasonably contemplate prosecution when the documents were created. Moreover, while determining that it did not have to decide the issue, the Court of Appeal also stated that it may also have departed from the existing narrow definition of “client” for legal advice privilege purposes in the context of corporate investigations. Continue reading →
On July 12 and 16, 2018, the U.S. Commodity Futures Trading Commission (“CFTC”) announced two awards to whistleblowers, one its largest-ever award, approximately $30 million, and another its first award to a whistleblower living in a foreign country. These awards—along with recent proposed changes meant to bolster the Securities and Exchange Commission’s (“SEC” or “Commission”) own whistleblower regime—demonstrate that such programs likely will continue to be significant parts of the enforcement programs of both agencies and necessarily help shape their enforcement agendas in the coming years.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) authorized the CFTC to pay awards of between 10 and 30 percent to whistleblowers who voluntarily provide original information to the CFTC leading to the successful enforcement of an action resulting in monetary sanctions exceeding $1 million. Following the introduction of implementing rules, the CFTC’s program became effective in October 2011. Over the next six-and-a-half years, the CFTC has paid whistleblower bounties on only four prior occasions, with awards ranging from $50,000 to $10 million. The $30 million award announced last week, thus, reflects a significant increase. This week’s award to a foreign whistleblower also represents another first for the CFTC’s program and reflects the global scope of the program. Continue reading →
Avoiding retaliation for reported workplace misconduct is essential for companies and enforcement officials. Companies are accountable not just for their bad acts, but also for the cover up, including how they respond to allegations. A new survey of conduct in the US workplace by the Ethics and Compliance Initiative (ECI) has some bad news. Employees say that retaliation against whistleblowers is on the rise, doubling in the past four years. These disturbing results should motivate companies to (1) encourage candid internal discussions of what exactly constitutes retaliation (and what does not); (2) train managers to handle retaliation concerns and to avoid unintended acts of retaliation; and (3) ensure anti-retaliation programs are supported by a strong ethical culture.
The ECI Survey
Since 2000, ECI, a leading ethics and research organization for compliance professionals, has surveyed workplace conduct from the employees’ perspective. Their 2017 survey of more than 5,000 employees across the US has good and bad news. Continue reading →
In 2010, in the wake of the financial crisis, Congress passed comprehensive financial regulation reform legislation known as the Dodd-Frank Act (Pub.L. 111-203). Section 922 of the Dodd-Frank Act established both a bounty award program as well as anti-retaliation protection for whistleblowers who report securities law violations.
Pursuant to the mandate of Section 922, the US Securities and Exchange Commission (“SEC”) established an Office of the Whistleblower, and implemented its final rules on the Dodd-Frank Program through a comprehensive rulemaking process that involved significant public input in May 2011. Continue reading →
Effective anti-corruption compliance programs include protections for whistleblowers that raise corruption concerns. Article 13.3 of Russia‘s 2008 Federal Law No. 273-FZ on Counteracting Corruption (the “Anti-Corruption Law”) addressed Russian lawmakers’ expectations regarding effective compliance programs. But the law was silent on whistleblower protections. Recently proposed legislation in Russia may help address this gap.
Even before the Anti-Corruption Law came into effect, Russian law included several provisions that could be interpreted to provide some protection for whistleblowers. For example, Russian employment law prohibits discrimination and sets out an exhaustive list of permissible grounds for dismissing an employee for cause; firing an employee for blowing the whistle on potential corruption is not among them. As a result, firing an employee for whistleblowing could ran afoul of Russian employment law. In addition, the Russian government can protect individuals whose security might be threatened as a result of their participation in criminal proceedings that involve alleged corruption. The state might, for example, provide such witnesses with physical protection, relocate them, or even give them new identities. Continue reading →
Next October, the Supreme Court will hear oral argument in Digital Realty Trust, Inc. v. Somers. The case asks the Court to resolve whether the Dodd-Frank Act’s anti-retaliation protections for “whistleblowers” apply to those individuals who first report information solely to the SEC, or instead to the broader group of individuals who report information internally or other enforcement agencies before seeking out the SEC. As noted in an earlier post on this blog, circuit courtsare (PDF: 161 KB)split (PDF: 1,469 KB) on the issue, and whereas the SEC itself has embraced the broader definition, Dodd-Frank’s explicit definitional language offers some room for doubt.
When the case does reach the Supreme Court, litigants favoring the broader definition presumably will portray what has now become the standard depiction of the whistleblower’s dilemma: An employee knows her bosses are cooking the books. She would like nothing to do with this sort of activity but she fears she will lose her job and be iced out of her industry if she says anything. Continue reading →
Confidentiality and employment agreements have not historically been a matter of concern for the nation’s leading securities regulator. However, since August, the SEC has settled eight enforcement actions involving allegations of improper conduct with respect to employment agreements as part of its efforts to encourage, protect and reward whistleblowers. If this enforcement blitz surrounding Rule 21F-17 continues, it could ultimately change the terms of confidentiality provisions at a far ranging list of employers from publicly traded companies to financial institutions to government contractors.
What is SEC Rule 21F-17? It is the 2011 regulation adopted by the SEC as part of the rules governing its Dodd-Frank Act authorized whistleblower program. It prohibits, with a few small exceptions, “any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement ….” 17 C.F.R. 240.21F-17(a). In short, it bars efforts to impede whistleblowers from reporting misconduct to the SEC. Continue reading →