[authors: Lloyd Chinn, Rachel Fischer]
In a recent interview with The American Lawyer, Sean McKessey, Chief of the SEC’s Office of the Whistleblower since February 2011, cautioned employers about dissuading potential whistleblowers from complaining to the SEC. Mr. McKessey made his remarks in the wake of the SEC’s recent Annual Report on the Dodd-Frank Whistleblower Program, which revealed that the SEC has received 3,001 tips during its 2012 fiscal year (the first year of this program), and it paid out its first award to a whistleblower in 2012. We described the key portions of the SEC’s Annual Report in our previous post, available here.
Despite the issuance of only one award totaling under $50,000 during the first year of the Dodd-Frank Whistleblower Program, Mr. McKessey believes that the SEC’s whistleblower bounty program is off to a strong start and explained that applying for awards involves statutorily-imposed waiting periods that can cause delays in issuing awards. Notwithstanding Mr. McKessey’s belief that the SEC’s Whistleblower Program has thus far been successful, according to The American Lawyer interview, he expressed concern that employers and their attorneys have attempted to prevent employees from making whistleblower tips to the SEC. The stated basis for Mr. McKessey’s belief is that “corporate lawyers” too often ask him what kind of policies and/or agreements can be drafted to prohibit employees from reporting whistleblower claims to the SEC. Mr. McKessey apparently takes exception to such questions and reportedly stated, “If you’re dissuading or prohibiting individuals from reporting to us, you’re violating the rules.”
In the interview, Mr. McKessey also reportedly explained that the SEC’s Office of General Counsel has told him to find examples of lawyers violating these rules. According to Mr. McKessey, “If [lawyers] are drafting very aggressive language to intimidate employees, we want to know about it. The authors of that language might be held accountable.”
Of course, there is presumably a distinction between taking steps to prohibit employees from contacting or cooperating with the SEC, on one hand, versus, on the other, encouraging them to report their concerns internally. We don’t believe that Mr. McKessey’s remarks were intended to suggest otherwise. Employers (and their counsel acting in an advisory capacity) can and should encourage employees to report concerns internally. That said, employers should, for example, refrain from including language in separation or settlement agreements that prevents current or former employees from reporting concerns to the SEC.