With great fanfare, the SEC Office of the Whistleblower opened its doors in September of 2011, and eagerly asked whistleblowers to step forward. The office is authorized to reward “high-quality, original information” that results in an enforcement action with sanctions exceeding $1 million; payouts to individuals can range from 10 to 30 percent of the money collected in a case.
As the whistleblower bounty hunter program was launched, many compliance and legal professionals were worried that employees would head directly to the SEC with reports of illegal activity, entirely circumventing and undermining internal compliance programs. Compliance professionals got to work, and made sure they improved their internal reporting mechanisms, and systems for investigating and resolving problems.
And as the months ticked by, the SEC reported that it was getting a lot of high-quality tips, but the big payouts weren’t being made. The reality is that it takes time for cases to work through the system.
And what employers feared… that big, multi-million dollar payouts would drive employees to the SEC in masses … did not materialize for most. Compliance professionals have noted that the bounty program has not undermined internal reporting.
Up until today the payouts have been small. The first, in August of 2012, was for $25K. An additional payout in August 2013 is likely to reach $125K over time, split among 3 people. The reality is that rewards of this size don’t generate much interest; and are not really large enough to tempt an employee to make an external report.
But what about $14 million?
That’s a number that is more likely to grab someone’s attention and get an employee to think twice about where to go with concerns about unlawful activity. Just today, the SEC announced a $14 million dollar reward to one whistleblower (who has chosen to remain anonymous). With a robust pipeline of cases, and continued reports of high-quality leads (the SEC received 3000 in the past year), the SEC promises more to come. SEC officials have indicated that the program will produce “incredibly impactful cases” including some with “some extremely significant whistleblower awards.”
For compliance professionals, now is the time to challenge the effectiveness of your internal mechanisms.
Make sure that everyone knows about your internal reporting methods – including your ethics hotline.
Make sure that your employees know you are committed to protecting them when they step forward, and won’t tolerate retaliation—this means training.
Conduct employee focus groups to learn what your employees really think about internal reporting and retaliation.
Make sure your process works and employees are actually treated fairly and real issues are properly managed.
Monitor for retaliation and case handling effectiveness.
Constantly evaluate and improve your process.
If your internal systems fail, your organization will find itself defending costly retaliation claims, and those employees who have lost trust in your process will go to the SEC rather than to your hotline.