SEC Whistleblower Program
Presented by:
Karl M. Strait, Partner Jennifer L. Farer, Associate Eric B. Martin, Associate
SEC Whistleblower Program – Key Features
• SEC may pay rewards to individuals who provide SEC with high-quality tips that lead to successful
enforcement actions relating to past, on-going or
imminent violations of the securities laws.
• Bounties of 10-30% of collected monetary sanctions exceeding $1 million
• Need tips from “those closest to an on-going fraud.” (SEC Chairman Mary Schapiro)
SEC Whistleblower Program – Key Features
• To receive an award, a whistleblower must …
“Voluntarily provide the SEC with original information
that leads to the successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1
million.”
• Whistleblowers may remain anonymous, but must be represented by an attorney and disclose identity before collecting an award
• Anti-retaliation protections apply to whistleblowers whether or not they qualify for an award
Avoiding unintended consequences . . .
• Seeks to balance need to encourage whistleblowers without promoting unintended consequences.
• Certain kinds of people are not be eligible for awards, e.g.
– people who have duty to report
– Information subject to attorney-client privilege or gained as result of legal representation
– independent public accountants
– officers, directors, trustees or partners who participate in internal compliance process; internal and external
Avoiding unintended consequences . . .
• Program includes provisions to “discourage employees
from bypassing their own company’s internal compliance programs.”
– Employee whistleblower who first reports internally can preserve “place in line” for SEC award (from date of
internal report) – if employee provides same information to SEC within 120 days.
– Information reported to SEC from the company’s
investigation will be considered when deciding whether to make an award and where the award should fall in the 10% to 30% range
– SEC can consider whether whistleblower participated in, or interfered with, company compliance programs when determining amount of award.
Concerns
• Provides windfall for whistleblowers
• Little, if any, incentive for internal reporting • Encourages frivolous complaints
Internal Reporting Policies/Procedures - Design
• Update compliance and ethics programs based on legal developments and the times to ensure that an efficient, comprehensive action plan is in place that can be executed immediately
– 120 days to complete internal process
• Include a robust internal reporting system and incorporate provisions that encourage internal reporting
Design – cont.
• Ensure that current policies, including confidentiality agreements, do not prohibit protected whistleblowing • Review internal processes for issuing “document
holds”
• Focus efforts on education and training of employees, board members, and personnel
Internal Reporting Policies/Procedures
-Documentation
• Be prepared to demonstrate compliance efforts both generally and specifically
– Companies’ actions, both before and after reports are received, may be reviewed by the SEC with the benefit of hindsight
• Generally: document programs and process of implementation
• Specifically: make sure to appropriately document responses to each complaint, including the
Internal Reporting Policies/Procedures
-Implementation
• Cultivate a culture that emphasizes legal and
regulatory compliance and ethical conduct and that encourages employees to report internally
• Bolster internal auditing and monitoring
• Engage in on-going oversight and review of the corporate compliance program at the board level • Maintain open lines of communication
• Underscore the company’s anti-retaliation policies • Take all reports, even anonymous tips, seriously and
act on them
Do’s and Don’ts for Responding to
Whistleblowers
• Expect increase in whistleblower claims
• Expect corresponding increase in retaliation claims • Prepare now
Do’s and Don’ts for Responding to
Whistleblowers
• Strengthen HR best practices • Take proactive steps
Strengthen HR Best Practices
• Detailed, accurate performance records
• Strong, clearly communicated non-retaliation policy • Surveys and exit interviews
Take Proactive Steps
• Institute whistleblowing policy
• Reward compliance and reporting • Train HR and Auditors
Handle Whistleblowers Properly
• Treat all reports seriously
– investigate – report back
• Involve HR, Legal, and Senior Management • Consider neutral investigator
• Actively prevent retaliation
Resources
• SEC Office of the Whistleblower
(http://www.sec.gov/whistleblower)
• The Rules for Whistleblowers: Significant Aspects of the SEC’s Whistleblower Incentives and Protection Program
(
http://www.mcguirewoods.com/news-resources/publications/rules-for-whistleblowers.pdf)
• Department of Labor Ruling Significantly Broadens Whistleblower Protections
(
http://www.mcguirewoods.com/news-resources/item.asp?item=6000)
• Event Archive: Whistleblowers & Corporate Fraud Investigations (
For More Information, Contact:
Karl M. Strait, Partner One James Center 901 East Cary Street
Richmond, VA 23219-4030 804.775.1133
kstrait@mcguirewoods.com
Eric B. Martin, Associate One James Center
901 East Cary Street
Richmond, VA 23219-4030 804.775.1129
emartin@mcguirewoods.com
Jennifer L. Farer, Associate 2001 K Street N.W.
Suite 400
Washington, D.C. 20006 202.828.3336
