On April 28, 2020, the Securities and Exchange Commission (“SEC”) announced an award of $18 million dollars to a whistleblower for providing the SEC with crucial information that was used as part of an enforcement action against a firm found to be in violation of federal securities laws.
Prior to the SEC’s involvement, the whistleblower repeatedly attempted to bring the issue to the attention of the Firm’s senior management. The crucial information provided by the whistleblower prompted an examination of the firm, which in turn led to the enforcement action resulting in the recovery of millions of dollars of losses for investors and once again demonstrating the efficacy of the SEC’s Whistleblower Program. Per the SEC’s order, the Claims Review Staff (“CRS”) also made a recommendation to deny an award to three other claimants who submitted a claim in conjunction with the enforcement action.
Background: the SEC’s Whistleblower Program
Since 2012, the SEC has awarded over $448 million to 81 whistleblowers for bringing crucial information to the attention of the SEC and assisting with identifying securities laws violations that have resulted in the recovery of millions of dollars of losses for investors.
Under the Dodd-Frank Act, whistleblowers are eligible for awards based on the significance of their information and can be awarded up to 10-30% of sanctions against firms that exceed $1 million. All monies awarded to whistleblowers are distributed from a fund comprised of fines levied against firms found to have violated federal securities laws, and are not taken from investors funds recovered by the SEC.
Additionally, in 2018, the Supreme Court ruled that employees who claim whistleblower protections under the Dodd-Frank Act must bring their claims directly to the SEC in order to receive job protections from employers who might choose to terminate the employee in retaliation. By obligating the employee to report malfeasance directly to the SEC and bypass the employer, the Supreme Court’s decision created a stronger likelihood that more employees would seek to bypass senior management and go directly to the SEC with complaints.
What Should I Look for When Evaluating Whistleblower Policies and Procedures?
As with all policies and procedures (“P&Ps”), it is important for firms to continue to test the effectiveness of their whistleblower programs, especially considering the Supreme Court’s decision.
Chief Compliance Officers (“CCOs”) should review their whistleblower programs at least annually to ensure that they offer protections to employees who report malfeasance and that the anonymity of the employees will remain intact. This should include a review of the delivery system for reporting wrongdoing (e.g. employee hotline, online portal, etc.) to ensure its security so the employee can maintain confidence their privacy will be respected.
It is also important for CCOs to include their whistleblower programs as part of their annual training so that their employees understand how the reporting process works; reinforce that employee anonymity will be upheld; and, impress upon the employees the importance of acting ethically to ensure that any wrongdoing should be brought to the attention of the CCO and other senior managers.
How Can You Help Me with My Whistleblower Policies and Procedures?
Jacko Law Group can help your firm with evaluating and revising your whistleblower P&Ps to ensure that your firm’s whistleblower program is up-to-date and supports the efforts of employees who bring violations of federal securities laws to the attention of the CCO. Whistleblower programs should be reviewed at least annually, and our team of attorneys will use our extensive experience to ask detailed questions designed to determine if your whistleblower program is thorough, accurate, and up-to-date.
A passionate securities and corporate law attorney, Conor M. Dale supports, guides and offers practical solutions for our clients. With an eye for risk mitigation, Mr. Dale achieves results for financial industry firms by offering ...
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