The U.S. Attorney's Office for the Southern District of New York (SDNY) on Jan. 10, 2024, announced a Whistleblower Pilot Program (Program) that it is presenting as another "tool in [the SDNY's] toolkit"1 that could unearth new cases of massive fraud. The Program has the dual objectives of encouraging voluntary self-disclosure of criminal conduct and leveraging whistleblowers' cooperation to prosecute other participants in certain nonviolent offenses. Under the Program, where certain conditions are met – e.g., that the SDNY was not previously aware of the disclosed criminal conduct – SDNY federal prosecutors, at their discretion, may offer a Non-Prosecution Cooperation Agreement in exchange for truthful and complete self-disclosure and full cooperation, including substantial assistance in the SDNY's "investigation and prosecution of the disclosed conduct."
While acknowledging that the Program follows long-standing SDNY practice, U.S. Attorney Damian Williams expressed hope that formalizing and publicizing the Program would offer a "path" to those who "have some exposure and are laboring under the anxiety that they have done something wrong and they don't want to live in fear." As Williams said bluntly, "Our message to the world remains: Call us before we call you."2 His aim is to have such individuals help his team "figure out what we don't know."3
A Summary of Program Requirements
The Whistleblower Pilot Program is generally being made available to individuals who come forward early to voluntarily report nonpublic information about financial and corporate fraud or public corruption at the state and local level, including their own participation and other misdeeds. In particular, the Program is directed to individuals who disclose "information regarding criminal conduct undertaken by or through public or private companies, exchanges, financial institutions, investment advisers, or investment funds involving fraud or corporate control failures or affecting market integrity, or criminal conduct involving state or local bribery or fraud relating to federal, state, or local funds."4
Significantly, and inexplicably, the Program does not extend to allegations of misconduct involving campaign finance issues, corruption of the electoral process, bribery of federal officials or violations of the Foreign Corrupt Practices Act (FCPA). More understandably, the Program is also unavailable to elected officials, federal law enforcement personnel, CEOs, CFOs or their equivalent, or persons who are, or may become "of major public interest"5 – an elastic concept, determined by the SDNY in its sole discretion.
In addition to the limitations on types of eligible offenses, the Program is not open to all who seek to voluntarily disclose and cooperate. Those who need not apply include prior felons or other individuals engaged in criminal conduct involving fraud, dishonesty, terrorism, national security, or use of force or violence, as well as various sex offenses.
Whistleblowers accepted to the Program can receive Non-Prosecution Cooperation Agreements. The strict conditions for eligibility include the following: 1) the government was not previously aware of the disclosed criminal conduct, 2) the individual provides "substantial assistance" in an investigation and any related prosecution, 3) disclosure is voluntary and not in response to a government inquiry or obligation to report and 4) the individual has not engaged in violence or coercion, among other criminal offenses, as discussed above.
The announcement is but the latest initiative by the SDNY and U.S. Department of Justice (DOJ) to broadly promote disclosure programs to identify more extensive criminal conduct. In September 2022, the DOJ, in the "Monaco Memo," announced its position that corporations could be eligible for prosecutorial credit only if they disclosed "all relevant, non-privileged facts about individual misconduct" and did so "swiftly and without delay" to afford prosecutors "the opportunity to effectively investigate and seek criminal charges against culpable individuals." (See Holland & Knight's previous alert, "DOJ Expands Framework for Cracking Down on Corporate Crime," Sept. 19, 2022.) In February 2023, following the Monaco Memo's direction for effective corporate disclosure policies nationwide, the SDNY and U.S. Attorney for the Eastern District of New York jointly announced implementation of voluntary self-disclosure policy applicable to all U.S. Attorney offices to standardize the requirements encouraging timely and full disclosure and cooperation, as well as effective corporate compliance programs.
Takeaways
The SDNY initiative constitutes further evidence of its ongoing and dedicated commitment to rigorous enforcement of criminal law in business operations involving financial markets, investment activity and financial institutions, as well as corruption involving public funding. It remains to be seen whether this additional endeavor to forge a pathway for certain individuals with suspected criminal exposure will result in increased levels of self-reporting and additional cooperation-initiated prosecutions of business crimes. However, business organizations in financial, investment and other markets would be well advised to heed the SDNY announcement and review their own procedures, systems and compliance programs to ensure that they are practical, reasonably tailored to address the applicable risks and effective – and that they undertake such an evaluation "swiftly and without delay."
Notes
1 SDNY press release.
2 Id.
3 Id.
4 SDNY Whistleblower Pilot Program.
5 Id.
