According to SEC.gov, since its inception in 2011, the Securities and Exchange Commission (SEC) has awarded $85 million to 32 tipsters. A third of those awards have come in just the second quarter of this year, including the second largest award to date: a $17 million award for a tip involving an unnamed financial institution.
Under the rules of the program, whistleblowers that provide unique and useful information to the SEC can collect 10% to 30% of a penalty when it exceeds $1 million.
Sean X. McKessy, chief of the SEC’s Office of the Whistleblower noted, “The recent flurry of awards reflects the high-quality nature of the tips the SEC is receiving as public awareness of the whistleblower program grows.”
The plaintiff’s bar is aiding the whistleblowers
In fact, the success of the program has resulted in many of the largest white-shoe law firms establishing dedicated whistleblower-representation practices. These practices specialize in helping whistleblowers navigate the process, protecting the informant’s interests and, of course, helping them earn their whistleblower rewards.
More awards, larger awards, and specialized plaintiff attorneys all suggest that whistleblowing is set to become a permanent feature of the American business landscape. Therefore, it is important that financial institutions embrace the power of whistleblowing and use it to their advantage. If your institution hasn’t already taken the following steps towards developing an appropriate internal whistleblower program, do so. Welcome the opportunity to improve your institution. Don’t fight the trend. The alternative is to face fines and headlines that could result from an adversarial confrontation with the SEC.
Developing an appropriate internal whistleblower program
Formalize your internal whistleblower program and communicate it.
Publicize your program internally and encourage senior management to promote it. Not only is this essential for the practical success for any program, it is a vital means of demonstrating your commitment to regulators. Companies are often willing to encourage new ideas for improvement, but hesitate when it comes to reporting bad behavior.
Address concerns immediately.
Make sure the reporting process is transparent, anonymous and independent from management and human resources. Incentivize reporting and share the positive results with the entire firm. Keep the whistleblower informed about any follow-up.
How your institution reacts to a concern that has been identified may be monitored by the SEC or a whistleblower’s counsel. Make sure your team responds with professionalism—and records those responses meticulously. Your internal communication must make it clear to employees in its policies and procedures that retaliation of any kind will not be tolerated.
Right attitude / better results
In 2015, the SEC received nearly 4,000 whistleblower tips and paid out more than $37 million in awards. Any stigma that may have been attached to whistleblowing in the past is gone, and Dodd-Frank has provided financial incentives for employees to come forward. The SEC has stated that they will be particularly diligent about investigating possible retaliation against whistleblowers.
Rather than begrudgingly adhering to the Dodd-Frank requirements – embrace them. Instill them in your management. Understand that, now that whistleblowing is part of our business culture, it can be harnessed to benefit your institution. When managed correctly, internal whistleblowing programs can be a low-cost way to correct liabilities that your firm has otherwise overlooked. It is time to think of whistleblowing as constructive criticism and recognize the benefits that it can offer.