WilmerHale provides legal representation across a comprehensive range of practice areas critical to the success of its clients. With a staunch commitment to public service, the firm is a leader in pro bono representation. WilmerHale is 1,000 lawyers strong with 12 offices in the United States, Europe and Asia.
Under the Securities and Exchange Commission's new whistleblower program, individuals who report potential securities violations to the SEC may be entitled to a reward of between 10 and 30 percent of any monetary recovery exceeding $1 million.
Under the Securities and Exchange Commission's new
whistleblower program, individuals who report potential securities
violations to the SEC may be entitled to a reward of between 10 and
30 percent of any monetary recovery exceeding $1 million. According
to a report issued by the SEC, the agency has set aside $452
million for whistleblower compensation,1 which it
expects to begin paying out as early as August 12, 2011 when the
final rules take effect. Sean McKessy, Chief of the SEC's new
Office of the Whistleblower, and his staff have been developing
procedures for receiving tips and processing award claims.
SEC officials report that the agency currently receives as many
as 100 tips per day from whistleblowers and their attorneys. The
SEC will exercise discretion in deciding whether to notify a
company of its receipt of a whistleblower complaint. In making its
determination, the SEC may consider factors such as the nature of
the alleged conduct, whether the whistleblower has already reported
internally and whether the alleged conduct involves senior
management.
In instances where a whistleblower first reports a potential
violation internally, that individual may still be eligible for an
award if the whistleblower submits the same information to the SEC
within 120 days of providing the information to the company. As a
result, companies have an incentive to investigate reports of
potential violations quickly while also ensuring compliance with
the anti-retaliation protections, which apply irrespective of
whether the whistleblower is entitled to an award.
As the SEC's bounty program provides incentives for
whistleblowers to report potential wrongdoing directly to the SEC,
companies should take steps now to bolster internal reporting and
investigative procedures and encourage employees to utilize
internal reporting mechanisms. Most importantly, all companies
should revisit the "tone at the top" of the enterprise
and the basic tenets of their corporate culture, which should
always encourage employees to "do the right thing."
What proactive measures should companies consider now?
1. Enhance the culture of
compliance. Ensure that the existing compliance culture
actively encourages internal reporting and resolution of potential
violations. This includes monitoring the "tone at the
top" and evenly applying internal policies across all
levels.
2. Publicize internal
reporting procedures. Internal publicity should promote
the value of internal reporting to the company and provide
assurances that employees who report potential violations will be
taken seriously and not retaliated against.
3. Provide supplemental HR
training to supervisors. Ensure that supervisors are
adequately trained to respond to employee reports of possible
violations quickly and appropriately. Regularly remind supervisors
of policies against retaliation and the types of conduct that could
be deemed retaliatory. Take steps to ensure that troubled workplace
relationships are handled promptly and with care.
4. Strengthen infrastructure
for receiving tips. Regularly review corporate hotlines
and other internal reporting channels and ensure that employees are
aware of how to access these resources. Designate specific
individuals within legal and compliance departments to review
complaints and respond to whistleblowers.
5. Provide regular
opportunities for reporting. Consider using periodic
performance evaluation meetings as an opportunity to remind
employees of the available mechanisms for internal anonymous
reporting.
6. Review existing reporting
and disclosure policies to ensure compliance. Ensure that
confidentiality agreements neither state nor imply that SEC
reporting violates confidentiality obligations.
7. Create an investigative
response team. Consider establishing or reinforcing a
response team of designated individuals from the legal department
to investigate whistleblower complaints. Ensure that individuals on
the response team have quick access to electronic data and are
trained to handle documents and information in a manner that
preserves privilege.
8. Prepare procedures to
guide investigations. Establish a clear process for timely
investigation of complaints of potential securities violations so
that the company may determine whether there is actual misconduct
to self-report to the SEC.
9. Establish procedures for
communicating with whistleblowers. Provide whistleblowers
with timely acknowledgment that the complaint is being addressed.
Communicate with the whistleblower periodically throughout the
investigative process as appropriate and once a final conclusion
has been reached.
10. Keep records of the
complaints and how they are handled. Ensure that
complaints are properly maintained. Where appropriate, prepare a
final report of investigation findings and maintain a log of all
corrective action taken.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.