United States: SEC Report Indicates Whistleblower Program Going Strong

Last Updated: November 19 2015
Article by Edward T. Ellis, Earl (Chip) M. Jones III and Whitney A. Caldwell

Compliance professionals and attorneys received confirmation on Tuesday of what many have long expected: the U.S. Securities and Exchange Commission whistleblower program is steadily growing in scope and impact, and the SEC is taking more aggressive positions to obtain information from whistleblowers and protect informants from retaliation. These developments have profound implications for corporate business conduct and the compliance industry.

On November 16, the SEC released its 2015 Annual Report to Congress on the Dodd-Frank Whistleblower Program, summarizing awards paid to whistleblowers in Fiscal Year 2015, and announcing the Commission's enforcement priorities for 2016. The number of tips rose to 3,923 in 2015, the highest ever, and payouts to whistleblowers increased to $37 million, also a record amount.

The majority of the total payout — more than $30 million — was paid to a single, foreign whistleblower.

Summary of Awards and Developments in 2015

The Commission described three categories of awards made for the first time in 2015:

  • An award to a compliance professional under the exception for whistleblowers who report wrongdoing to prevent "substantial injury to the financial interest or property of the entity or investors";
  • An award to a former company officer, typically ineligible unless a report is made "more than 120 days after other responsible compliance personnel possessed the information and failed to adequately address the issue"; and
  • The Commission's first award in an anti-retaliation matter.

In the anti-retaliation matter, a whistleblower received the maximum award payment of 30% of the amount collected by the Commission, totaling more than $600,000, because the employer:

immediately engaged in a series of retaliatory actions against the whistleblower including removing the whistleblower from the whistleblower's then-current position, tasking the whistleblower with investigating the very conduct the whistleblower reported to the Commission, changing the whistleblower's job function, stripping the whistleblower of supervisory responsibilities, and otherwise marginalizing the whistleblower.

The Commission noted what it regards as a compelling law enforcement interest in protecting employee whistleblowers from this type of retaliation.

The Report highlights the Commission's international reach, noting a September 2015 award marked the third matter in which the Commission made an award to a whistleblower residing outside of the United States.

The Report also contains general information regarding how the Commission assesses award applications, the intake process for whistleblower tips, how it communicates with whistleblowers, its public outreach and education efforts related to whistleblower protections, and training and assistance to Commission staff.

Enforcement Priorities for 2016

The Report reiterates the Commission's intent to crack down on language in confidentiality agreements that may impede whistleblowers from reporting. In the Report's introduction, Office of the Whistleblower Chief Sean X. McKessy states, "Assessing confidentiality agreements for compliance with Rule 21F-17(a) will continue to be a top priority." Employers should ensure their confidentiality agreements are compliant with the Commission's expectations, and should expect the Commission to continue focusing on these agreements.

The Commission issued interpretive guidance in August 2015 clarifying that the anti-retaliation provisions apply to internal as well as external whistleblowing. The Report notes that of award recipients who were current or former employees, approximately 80% raised concerns internally or understood a supervisor or compliance personnel knew of the violations before the whistleblower reported the information to the Commission. The Commission is likely to continue focusing on retaliation against individuals who report internally. Commission Chair Mary Jo White is quoted in the Report, "We want whistleblowers—and their employers—to know that employees are free to come forward without fear of reprisals."

Priorities for Employers

The Report underscores the necessity for an employer to consider the following:

  • Review any codes, policies, procedures, and agreements for language that might appear to restrict an employee from reporting externally.
  • Establish an investigation protocol that allows employees to report concerns of potential misconduct in a manner that protects the employee from retaliation and also ensures an effective investigation, which should allow for prompt remedial action.
  • Develop a "speak up" culture that encourages employees to ask questions or report concerns without fear of retaliation and dovetails into the employer's employee engagement strategy.
  • Ensure that the board of directors is overseeing the CEO and C-Suite executives and holding the executive team accountable for creating the appropriate "Tone at the Top" for the organization.

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.

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Authors
Edward T. Ellis
Earl (Chip) M. Jones III
 
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