SEC Brings First Whistleblower Retaliation Enforcement Action


In announcing its first enforcement action for retaliating against a whistleblower, the U.S. Securities and Exchange Commission (SEC) sends a strong message to firms: it is serious about bringing charges against companies that punish employees for reporting potential securities law violations to the agency.

The SEC recently charged a hedge-fund advisory firm with carrying out prohibited transactions and then engaging in a series of retaliatory actions against the employee who reported the misconduct to the SEC. The firm agreed to pay $2.2 million to settle both charges.

The SEC has repeatedly stated that whistleblower protection is key to getting people with intimate knowledge of violations to come forward. Under the whistleblower provisions of the Dodd-Frank Act, the SEC can bring anti-retaliation enforcement actions and encourage and facilitate employee information by offering significant financial incentives.There is also an anonymous reporting process for submitting tips to the SEC’s Office of the Whistleblower.

In the past, employees had nowhere to turn to effectively redress retaliatory action or voice their concerns about their employer’s illegal activities. Now, the SEC and other federal agencies have the power to listen and take action based on employee information. Organizations can no longer simply implement internal hotlines and support groups as proof of their commitment to combating fraud.

An important step in creating a culture of compliance is ensuring that employee complaints about possible corporate wrongdoing are taken seriously and properly addressed through policies and procedures. Furthermore, retaliatory measures must be avoided or businesses stand to incur substantial fines and penalties not only for the underlying fraudulent activities, but also for improperly handling the situation.

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