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This Week on Honesty Without Fear

Posted on May 15, 2012 by Lindsey Williams

Tune in today at 1:00pm EDT to Honesty Without Fear on Progressive Radio Network.

We invited candidates from one of the most hotly-contested House races, incumbent Michael Grimm and Mark Murphy, to come on the show to discuss the Grimm Act (H.R. 2483) with host Steve Kohn. The Grimm Act would reverse the corporate whistleblower protections passed in the Dodd-Frank Wall Street Reform Act. Congressman Grimm did not respond to the interview request, but candidate Murphy discusses his position on the Grimm Act and whistleblower protections.

Additionally, whistleblower Eugene Ross and attorney Jordan Thomas will join Steve to weigh in on how the Grimm Act will impact corporate culture. Eugene Ross blew the whistle on corporate fraud at Bear Stearns, and Jordan Thomas is partner at Labaton Sucharow and former SEC official who worked on drafting the SEC rules for Dodd-Frank.

 
Submit Your Question to be asked on air during the show or call in to 1-888-874-4888.

 

Missed last week's episode?? You can listen to the podcast.

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Wal-Mart. Whistleblower. Whitewash. Talk Amongst Yourselves.

Posted on May 4, 2012 by Donna Boehme

By Guest Columnist: Donna Boehme
Principal at Compliance Strategists LLC and editor of the weekly CS Newsflash (and former chief compliance and ethics officer at two leading multinationals)

Holy Wal-Mart Whitewash, Batman!  Without a doubt, the unfolding Wal-Mart bribery scandal in Mexico (coming soon to a business school case study near you) is ripe for “lessons learned”  for governance experts everywhere.   But it is also illuminating to drill down a little further and examine the implications from a whistleblower point of view.   

It’s true that only some of the facts are known so far, revealed in an exhaustive New York Times 8,000+ word investigative report.  But those reported facts are not boding well for the giant retailer.  This we know:  1) in 2005, a whistleblower with intimate knowledge of a Mexican bribery scheme (to secure permits and rapidly expand the market share) sent an email raising the flag to the international general counsel 2) although that international GC strongly recommended an expanded independent investigation, she was overruled (and ultimately resigned) 3) the top GC, CEO and “a small group of executives”  decided to refer the investigation to the very Mexican GC who authorized the bribes in the first place, who then 5) promptly closed the matter with a finding of “nothing to see here”  6) Wal-Mart decided to “self-report” only after learning of the soon-to-be newspaper expose and 7)  none of the execs or legal counsel involved in the handling of the matter have been fired or disciplined,  and a few have even been promoted.   Whew!  

As this tale of corporate whistleblower woe publicly unfolds, what have we learned? Early observations from the whistleblower standpoint:

 

  • All internal reporting systems are not created equal.

Why would a widespread bribery scheme, reportedly well-known to Wal-Mart employees and managers in Mexico, fail to be detected and raised to the highest governing authority through existing reporting mechanisms?    We now know that the whistleblower first notified the legal department through email.  But what about all the other employees “in the know” in Mexico and elsewhere in Wal-Mart? Did none of them trust the internal mechanisms enough to raise the alarm? Or if they did, what happened?  And where was the chief compliance officer?  So far it is alleged that the 2005 complaint was “hushed up” by the General Counsel and senior execs, and never made it to the boardroom. That’s alarming indeed, but not surprising.

Creating and maintaining an internal reporting system requires a lot more than hiring a third party vendor, turning on the phone lines and hanging posters.  Yet I continue to be amazed by the number of Boards and senior management teams who live with a false sense of security simply because they have a hotline or other employee reporting mechanism in place.  (See my open letter to boards on this point.)  Beyond the initial set-up, companies that are serious about compliance establish and enforce strict protocols for managing internal reports from initial intake to final consequences, whether discipline or process improvement.  And this is where the rubber meets the road, as powerful company forces often resist the very processes required for an objective, independent investigation.  As I have written elsewhere, Wal-Mart is Exhibit A, B and C for an independent chief compliance officer (i.e. not beholden to the General Counsel or any other corporate officer) who can oversee, among other things, the integrity of the investigation and the overall internal reporting system.  See “The Real ‘Happy Marriage’ Between the GC and the Compliance Officer.”  An independent CCO with a seat at the table would have been a cautionary voice in the exec decision-making process, and would have had direct, unfiltered access to report the matter to the board. If I were asked to advise a friend or a family member on how to raise a concern, I would recommend that they look carefully at the independence and rigor of a compliance program and internal reporting mechanism before ever pulling the trigger internally.
 

  • How a company reacts to internal whistleblowers is a good barometer of corporate culture.

That the Wal-Mart whistleblower tip may have been “whitewashed” in an allegedly sham investigation, underscores one of the prime reasons employees consistently give for not reporting perceived misconduct:  the belief that nothing will be done. 

Forget codes of conduct, training, CEO speeches and awards for “most ethical company in the universe.”  If you really want a good barometer of a company’s culture, and the priority it places on accountability, transparency and ethical leadership, look no further than how internal whistleblower reports are treated.  This is tough business for organizations because the natural human reaction to whistleblowers is usually “seek and destroy.”  As in:“I’m all for openness and transparency and for blowing the whistle on wrongdoing.  Except if the guy is on my team, and then he’s a no good traitor.”   The enormous challenge for companies is how to turn this human knee-jerk response into a safe, transparent environment where internal reporting is valued (and not merely tolerated) and tips are expeditiously, confidentially and professionally investigated.  Potential whistleblowers are nothing if not observant.  Just as they notice misconduct, they also see what happens to those around them who raise their hands.  According to the New York Times, after finding the company’s initial interest in his complaint fade away, the Wal-Mart whistleblower said “I thought nobody cares about this.  So I left it behind.”  How companies react when whistleblowers come forward drives the organizational culture in a direct and lasting way.
 

  • Wal-Mart, Dodd Frank aftermath and the Grimm Act:  Another bite at the apple?

How Wal-Mart botched the internal whistleblower’s claim is an ironic postscript to the 2011 Dodd Frank whistleblower debate.  

Not too long ago, a long list of veritable who’s who in Corporate America, led by the Chamber of Commerce (of which Wal-Mart is a prominent member), lobbied hard against the then-pending Dodd Frank whistleblower rules,  in particular against the provision that permitted employees to go directly to the SEC without reporting internally first.  The main objection was that the potentially enormous rewards (10-30% of penalties over $1M) would incentivize employees to bypass internal reporting systems,  undermine company compliance programs and otherwise cause the sky to fall.  See “The Sky Has Not Yet Fallen.”  In a smart balancing act,  the SEC rejected those objections, but created incentives to encourage internal reporting.  Now one year later,  that same corporate lobby is attempting another bite at the apple through Grimm Act (House Bill 2483), which would amend the Dodd-Frank whistleblower rules in a second attempt to require internal reporting as a condition to access to the law’s protections and financial rewards. 

The Wal-Mart headlines should give legislators considering the Grimm Act serious pause.  One of the disconnects in this debate has always been the divergent views on the effectiveness of internal reporting systems.  As noted in a 2011 RAND Symposium report on the topic, the corporate lobbyists based their arguments on the premise that these reporting mechanisms were working just fine, thank you very much,  and that Dodd-Frank was going to ruin years, even decades, of all that good work. In stark contrast, whistleblower advocates argued that many internal reporting programs might look good on paper, but in reality are so flawed that they fail in their mission.  Judging by reports so far, Wal-Mart could well be the poster child for the latter view. 

It will be worth revisiting this list of takeaways as more details reach the public domain.  At a minimum, the impact of the Wal-Mart spectacle on current efforts to curtail both the Dodd-Frank whistleblower rules and the Foreign Corrupt Practices Act will be interesting to follow. But for now,  it’s safe to say that companies may have a lot more work to do on their internal reporting systems,  and the controls surrounding investigations and reporting up the chain, before crying “the sky is falling”  about the Dodd Frank whistleblower program.  
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The Sky Has Not Yet Fallen

Posted on March 23, 2012 by Donna Boehme

(The First Seven Months of the SEC Dodd Frank Whistleblower Program)

By Guest Columnist: Donna Boehme
Principal at Compliance Strategists LLC and editor of the weekly CS Newsflash

So far, the sky has not fallen. That’s not to say there isn’t some curious weather activity.

Now that the SEC has logged at least seven full months of the Dodd Frank whistleblower program, it’s worth taking a moment for a brief status check on what we have learned so far. To do that we might consider two available clues: a public comment from an SEC official and the fate of a GE whistleblower who is suing the company for retaliation.

First, the SEC. Recently Sean McKessy, head of the new SEC whistleblower program, commented about the 2000 tips returned to date: "I'd be hard pressed to think of one where it was a true insider tip that was not reported to anyone else." That little nugget pretty much validates the results of the National Whistleblowers Center qui tam study that found nearly 90% of qui tam plaintiffs attempted to report their concerns either to their supervisors or compliance departments, before going to the government. This mirrors the anecdotal stories from advocates who say that by the time most whistleblowers come forward, they have already tried to report their concerns internally, not once, but three, four, nine times, and have been kicked in the shins (or far worse) for their troubles.

For context, the NWC had submitted the qui tam study to the SEC in December 2010 during the heated debate about the proposed whistleblower rules (which did not require reporters to raise their concerns internally first). At the time, the Chamber of Commerce and a list of big name companies, GE included, had vigorously argued that allowing whistleblowers to go directly to the SEC was a very bad, no good, terrible idea, because of the undermining impact it would have on internal compliance programs.

The alarmists feared that the rules would create an army of mercenary employees, lured by the promise of big bounties, to bypass internal reporting systems. A few commentators (myself included) wrote back then that the “the sky is falling” approach was probably hyperbolic. The SEC did the wise thing and declared that whistleblowers would be protected and potentially rewarded for raising their concerns through any channels – internal or external. And so far, it seems the flood of internal bounty hunters hasn’t exactly materialized. Based upon Mr. McKessy’s comment, it appears that Dodd-Frank whistleblowers actually do try to report internally first. Where it gets interesting is what often happens to them when they do that. 

Enter the case of GE’s former Iraq country head, Khaled Asadi, who in the summer of 2010 reported to his supervisor that GE officials had hired an Iraqi official’s relative (“to curry favor” during an electrical bid process), as a potential FCPA violation. In fact, Mr. Asadi did what the entire Chamber of Commerce posse (and presumably the GE Code of Conduct) wanted him to do - he reported internally. So it’s all good, right? Well, not exactly. Mr. Asadi has filed a retaliation suit against GE, seeking Dodd Frank whistleblower protections, because evidently, GE did not care much for the internal report, thank you very much. Mr. Asadi says that after filing his complaint with the GE ombudsperson, he was “pressured to step down” from a role he held since 2006, given an "extremely negative and troubling performance review," and then fired - all before he even thought to proceed with the next step of reporting to the SEC. 

So what’s the message here? The story is still unfolding but this much I know: it is a cold, cruel, perilous world out there for internal whistleblowers. And my hypocrisy radar is starting to beep. Because after all those loud complaints about Dodd Frank’s direct line to the SEC causing compliance programs across the land to blow up, GE now says Mr. Asadi should not get whistleblower protections because – wait for it – he didn’t file with the SEC. Oh, okay. Looks like that internal reporting thing didn’t turn out so well for Mr. Asadi. 

Here are my takeaways so far, after 7 months of the controversial Dodd Frank whistleblower rules. First, as the NWC contends, most employees still report perceived misconduct internally, driven more by a sense of “outrage” than mercenary dreams of a bounty*. Second, some companies have taken the wrong message from Dodd-Frank. Instead of stepping up their programs to bolster management culture and encourage employees to speak up, they’ve gone the opposite way. They are setting up a siege mentality and waging war on whistleblowers. They have let the litigation defense interests of the General Counsel trump the value to the company (and the corporate culture) of the free flow of information. This course is not only ill-advised and illegal – it’s appallingly bad self-governance. But I’m ever the optimist. As the SEC unveils some of its more high-profile Section 922 cases, I’m hoping more companies will decide to travel the right road. It is time for them to finally fix what’s broken in their culture and encourage, rather than punish, participation in their internal reporting systems.

 

*But see my column on the BNY Mellon/State Street cases organized by Harry Markopolos here.
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"Looking for whistleblowers in all the wrong places"

Posted on December 13, 2011 by Lindsey Williams

I had the pleasure today of interviewing Donna Boehme about the impact Dodd-Frank has had on corporate compliance programs. Our discussion about creating a corporate culture open to employee reports led to an interesting case detailed in her recently published column in Compliance and Ethics Professional. In the article, she talks about a group of employees at two national banks (BNY Mellon and State Street) who blew the whistle on approximately $2 billion worth of systematic foreign exchange trading fraud. These employees were recruited to blow the whistle by Harry Markopolos, the man who figured out what Bernie Madoff was doing and tried to warn the SEC years before the case erupted.

Ms. Boehme says the fact that these employees were actively recruited might lead some to believe that a “new breed” of whistleblowers, recruited to expose fraud by investigators outside the company, might be born out of the Dodd-Frank Act, but it is too soon to tell. She explains that the new SEC program for whistleblower disclosures has received over 334 tips in its first seven weeks. Boehme argues that instead of trying to “find the whistleblower” when fraud investigations get started, corporations should have a high-level Chief Ethics and Compliance Officer who is independent from the legal department and with direct access to the Board of Directors. This first test case highlights that companies should seriously evaluate whether their corporate culture supports internal whistleblowing, or be prepared to pay the price when they decide to go directly to external authorities. She does not believe that monetary rewards are the sole motivator, and cites recent surveys that employees prefer to report internally (culture trumps money).

Listen to the podcast of today’s show to hear the rest of our discussion.

Ms. Boehme is the principal at Compliance Strategists LLC in New Providence, New Jersey, a former chief compliance and ethics officer, a member of the Society of Corporate Compliance and Ethics’s Advisory Board, and the editor of the weekly CS Newsflash.

* Legal Intern David Kutch contributed to this posting.

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This Week on Honesty Without Fear

Posted on December 12, 2011 by Lindsey Williams

Tune in tomorrow at 1:00pm EDT to Honesty Without Fear on Progressive Radio Network.

In the first half hour, Lindsey Williams discusses Dodd-Frank’s impact on corporate compliance programs with Donna Boehme, Principle of Compliance Strategists, LLC and former head of compliance for BP.

In the second half hour, The Gold Agent discusses with Jane Turner his decision to blow the whistle on the gold industry’s deceptive practices and reveals his identity. You can take action to improve protections for whistleblowers by signing the petition.

Submit Your Question to be asked on air during the show or call in live to 1-888-874-4888.

Missed last week's episode?? You can listen to the podcast.

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Dodd-Frank CLE Seminar on November 29th in Philadelphia

Posted on November 27, 2011 by Lindsey Williams

Philadelphia SkylineCalling all Philadelphians, this month is your chance to hear an in-person talk with Stephen Kohn, Executive Director at the National Whistleblowers Center. He will be in town to teach a CLE seminar called, "The NEW Corporate Whistleblower Protections and Reward Provisions.”

Join Steve for the seminar on November 29, 2011, from 2:00pm to 4:00pm in Philadelphia. Special pricing is available for members of the NWC Attorney Referral Service (ARS) and for whistleblowers.

Space is limited, so reserve a seat at the seminar today.

The seminar curriculum includes a full tutorial on the new whistleblower provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act. Attorneys will learn how to use Dodd-Frank and other whistleblower laws to effectively represent employees, combat fraud, and qualify for large whistleblower rewards. Whistleblowers will learn how to navigate the complex legal system to receive maximum protection.

Two CLE credits are requested for Pennsylvania. New Jersey and New York have CLE reciprocity. If you would like to request CLE for another state, please contact us.

Register and learn more about the seminar here.

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Calling All Corporate Whistleblowers - Continued

Posted on October 6, 2011 by David Colapinto

Today, the Securities and Exchange Commission Office of the Whistleblower website posted 15 new covered actions that will now be considered for a whistleblower award. A whistleblower must submit a timely application for an award in a covered action within 90 calendar days. The SEC’s website is a vital resource for whistleblowers and their counsel to navigate the SEC whistleblower process to make disclosures and claim an award. You can access the website at this link: http://www.sec.gov/whistleblower and you may review all of the 185 cases (including the new cases posted today) that are eligible for consideration of an award at this link: http://www.sec.gov/about/offices/owb/owb-awards.shtml.

Why is the SEC whistleblower website so important? It can mean the difference between a whistleblower receiving or not receiving a financial award under Dodd-Frank. The SEC Whistleblower Office will publish a list of cases that the SEC considers “covered actions” under the Dodd-Frank and potentially eligible for an award. An individual then has ninety (90) calendar days from the date that “covered action” is posted to apply for an award from SEC Whistleblower Office.

The application does not mean that a whistleblower will automatically receive an award, but if the whistleblower does not submit an application within 90 calendar days of the date the covered action is posted on the SEC web stie they will have no chance receiving an award.

The SEC listed 15 new actions that are covered under the Dodd-Frank Act today. That means that the 90-day clock is rolling for whistleblowers to submit their award application form on those cases. The National Whistleblowers Center strongly encourages whistleblowers to check out the SEC whistleblower awards page regularly so they do not miss their opportunity to apply for a financial reward.

The SEC Whistleblower Office website also allows individuals to submit a tip online, provides answers to frequently asked questions, and has a list of supplemental resources about Dodd-Frank whistleblower awards, including the Final Rules.

If you are looking for legal representation to assist you in reporting fraud to the SEC, the National Whistleblower Legal Defense and Education Fund may be able to help you. You can submit a confidential intake form to the Attorney Referral Service by clicking here.

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Calling All Corporate Whistleblowers: SEC Rules Go Into Effect Today

Posted on August 12, 2011 by Lindsey Williams

Today is a big day for corporate fraud detection. The Security and Exchange Commission’s (SEC) Final Rules implementing the whistleblower provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act go into effect. The SEC has simultaneously launched a new Office of the Whistleblower website today. This website will become a vital resource for whistleblowers and their counsel to navigate the SEC whistleblower process to make disclosures and claim an award. You can access the website at this link: http://www.sec.gov/whistleblower and you may review the 170 cases that are now eligible for an award at this link: http://www.sec.gov/about/offices/owb/owb-awards.shtml.

Why is the website so important? It can mean the difference between a whistleblower receiving or not receiving a financial award under Dodd-Frank. The SEC Whistleblower Office will publish a list of cases that the SEC considers “covered actions” under the Dodd-Frank. An individual then has ninety (90) calendar days from the date that “covered action” is posted to apply for an award from SEC Whistleblower Office. The application does not mean that a whistleblower will automatically receive an award, but if the whistleblower does not submit an application they will have no chance receiving an award.

The SEC listed 170 actions that are covered under the Dodd-Frank Act today. That means that the clock is rolling for whistleblowers to submit their form on those cases. The National Whistleblowers Center strongly encourages whistleblowers to check out this page so they do not miss their opportunity to apply for a financial reward.

The SEC Whistleblower Office website also allows individuals to submit a tip online, provides answers to frequently asked questions, and has a list of supplemental resources about Dodd-Frank whistleblower awards, including the Final Rules.

If you are looking for legal representation to assist you in reporting fraud to the SEC the National Whistleblowers Center’s sister organization the National Whistleblower Legal Defense and Education may be able to help you. You can submit a confidential intake form to the Attorney Referral Service by clicking here.

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Whistleblower Center in NYC

Posted on July 25, 2011 by Lindsey Williams

The NWC is preparing for a full day of whistleblower events in New York City today. Join the NWC staff and Executive Director Stephen M. Kohn at two events teaching the public about whistleblower rights and the latest whistleblower protection laws.

First, come learn about the latest whistleblower provisions found in the Dodd-Frank Act, and how these rules can help you better represent your clients by providing them with greater employee protection and larger monetary rewards. Mr. Kohn will host this seminar entitled, “The NEW Corporate Whistleblower Protections and Rewards Provisions” at the Crowne Plaza Hotel from 1:00pm to 4:00pm (EDT). Click here to register.

Next, is an author talk and book signing featuring Mr. Kohn and his newly released book, The Whistleblower’s Handbook: A Step-by-Step Guide to Doing What’s Right and Protecting Yourself. This event will be held at the Mid-Manhattan New York Public Library (455 Fifth Avenue at 40th Street) from 6:30pm to 8:30pm (EDT). The talk is free and open to the public, so take this opportunity to meet one of the nation’s leading experts in whistleblower protection law. In addition, Bear Sterns whistleblower Eugene Ross and Federal Bureau of Investigation (FBI) whistleblower Robert Kobus will be in attendance.

Monday will be an excellent day for members of the whistleblower community to learn more about whistleblower rights. Come join the NWC and support some of America’s heroes.
 

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NWC seminar on Dodd-Frank a huge success

Posted on July 20, 2011 by Richard Renner
Sean X. McKessy and NWC founders

David Colapinto, Stephen Kohn, Sean McKessy and Michael Kohn.
Photo by Lindsey Williams.

Yesterday, the National Whistleblowers Center (NWC) road trip of seminars came to Washington, DC, to spread the word about new opportunities for whistleblowers under the Dodd-Frank Wall Street Reform and Consumer Protection Act. "This was the best continuing legal education I've had in 17 years," attorney Don McKenna told me. In fairness, this is in part because the law has never been so good for whistleblowers. "Dodd-Frank's employee protections are the Cadillac of whistleblower protections," NWC Executive Director Stephen M. Kohn said. However, it was also because of the star-studded faculty. The seminar marks the first appearance of Sean X. McKessy to a "whistleblower-friendly" crowd since he became Director of the Security and Exchange Commission (SEC) Office of the Whistleblower. There was more than one joke about McKessy's background working for corporations. Answering corporate concerns about whether the SEC's rules would undercut internal compliance programs, McKessy said, "I would know if something we [the SEC] do would destroy internal compliance as we know it." McKessy explained how he read through 305 pages of comments to the SEC whistleblower rules. He did so with an eye toward the 40% of frauds that go undetected. McKessy announced that on August 12, 2011 (the day the SEC whistleblower rules go into effect), his office will launch a new web page. The page will have a form for on-line whistleblower submissions. He said his office would be looking for submissions that are "specific, timely and credible." His main message, "We are open for business, and whistleblowers are welcome at the SEC."

Donna BoehmeDonna Boehme made a presentation on corporate compliance and interface with the new rules. Boehme (rhymes with "Rome") is an internationally recognized authority in the field of organizational compliance and ethics. She is currently a Principal of Compliance Strategists LLC. She serves on the boards of the RAND Center of Corporate Ethics and Governance, the Rutgers Center for Government Compliance & Ethics, the Society of Corporate Compliance & Ethics, and South Texas College of Law - Corporate Compliance Center, and is Program Director for the Conference Board Council on Corporate Compliance and Ethics. She previously served as Group Compliance and Ethics Officer for BP plc (London). Boehme said that she felt the SEC found a good balance between internal compliance and SEC enforcement action and is giving employees a choice of whether to report internally first depending on how they feel about the company's internal compliance program. "Employees really know if a company's compliance program is serious." One good clue: to whom does the chief compliance officer report?  If the answer is the CEO, CFO, general counsel, or HR director, then the program does not have the independence required for the compliance mission. A company's senior people are the typical wrongdoers, she notes. The correct answer is the board. "Expectations for the board are changing, and real board training should be the next wave," she urges. "Not all internal compliance programs are equal," Boehme observed. The process of developing a program employees will trust "allows companies to do some soul searching." Boehme, and her colleague Michael Greenberg, wrote an op-ed for Bloomberg Government last month on the SEC whistleblower rules. "Compliance and internal audit people often get in trouble for doing their job too well," Boehme told us.

Dean Zerbe and David ColapintoDean Zerbe (pictured with David Colapinto) is special counsel to NWC, and a principal of The Alliant Group. He formerly worked for Sen. Charles Grassley as chief investigator, and as counsel to the Senate Finance Committee.  In that capacity, he wrote the law creating the IRS whistleblower reward program. "The SEC rules came out a lot better because of the National Whistleblowers Center," Zerbe said, noting that the SEC cited NWC's comments over 40 times. "Thank them for the rule being much better." Zerbe's main point, however, was that, "the people whose hands are dirty are the ones who have the specific, timely and credible information." He explained that the phrase "substantially directed, planned, or initiated the violation" is a term of art that refers to the leader of the law-breaking group. Anyone who was following the leader should not suffer a reduction in any reward because they are precisely the group that whistleblower rewards were meant for. Moreover, since becoming a whistleblower can mean a person's career is over, rewards should not be reduced. "To catch a big fish, you need to put a lot of bait in the water."

The NWC seminar tour makes its next stop in New York City on July 25, 2011, at 1:00 p.m. Stephen Kohn will be speaking at the Mid-Manhattan Library in New York City at 6:30 pm (EDT) that evening on his new book, The Whistleblower’s Handbook: A Step-by-Step Guide to Doing What’s Right and Protecting Yourself.

Stephen Kohn offered additional tips for whistleblowers and their advocates.

  • Noting that the SEC rule for anonymous whistleblowers requires that they be made through counsel, Kohn suggested that an attorney could review the documents available for submission and select those that well establish the whistleblower's claim while minimizing the risk of "fingerprinting." In "fingerprinting" a corrupt corporate manager would use the scope of a government investigation, and the documents relied upon, to narrow the group of suspected whistleblowers.
  • The SEC Rule 21F-4(b)(4)(v) allows internal auditors to submit their own whistleblower reward claims in three circumstances:

(i) a report to the Commission is necessary to prevent substantial harm to the entity or investors;
(ii) the entity is engaging in conduct that will impede our investigation; or
(iii) 120 days have elapsed.

  • The 120 day time limit will create a dilemma for corporate managers. If they fail to self-report a violation to the SEC within 120 days, their own internal compliance personnel can start filing their own whistleblower reward claims to the SEC.
  • Since the SEC rules count reports to internal compliance programs in determining who was the first to file, whistleblowers should preserve evidence of their submissions to internal compliance.

Sean X. McKessy added these points:

  • Each time the SEC completes an enforcement action for over $1 million, it must post a notice of the action on its web page. This posting starts a 90-day clock. During the 90-days, any whistleblower seeking a reward from this enforcement action must file a claim for it. His office will then review the claims and determine what rewards, if any, it can make from the enforcement penalty.
  • The SEC Office of the Whistleblower plans to begin posting notices of eligible SEC enforcement actions on August 12, 2011.
  • Those whistleblowers who submitted anonymous claims before August 12, 2011, must provide their lawyer with a signed TRC form [tips, complaints and reports] by October 11, 2011. Anonymous claimants filing on or after August 12, 2011, must provide their signed TRC from to their attorney before they file.
  • Since the SEC gets over 30,000 tips a year, his office will be relying on the SEC Office of Market Intelligence to perform a triage function. Everyone at the SEC is looking for a good case, so it is in the interest of the whistleblower to make a good submission. Good submission have detailed information about dates, names, documents and witnesses. "Give us the iceberg," McKessy urges.
  • Any written submission to the SEC on or before August 11, 2011, can qualify for a Dodd-Frank reward. However, whistleblowers must pay attention to the SEC notices of eligible enforcement claims and submit their claims for rewards before the 90 day time limit expires.
  • If there are multiple claimants for the same reward, the reward goes to the whistleblower who was first to file, either with the SEC or with the company's internal compliance program.  Don't sit around waiting for a fraud to grow.  Be the first to file. The TCR portal is linked here. It will be updated on August 12, 2011.
  • Rewards can be increased in size based on (1) the significance of the information provided, (2) the whistleblower's cooperation, (3) the extent of the SEC's "law interest" in the case, and (4) the whistleblower's cooperation with internal compliance.
  • Rewards can be reduced based on (1) the whistleblower's culpability in the violation, (2) undue delay in reporting, and (3) interference with internal compliance efforts.
  • When making a submission to the SEC, please disclose any other reports you have made.  For example, if you disclose that you have also filed an IRS whistleblower report, or a report to the Department of Justice, then the SEC can share your information with those agencies and coordinate enforcement actions.
  • If the SEC staff recommends an award of less than 30%, you have 30 days to request an opportunity to review the record and meet with the staff. Exercising both options is a good idea. The time to appeal to the Claims Review Board (CRB) is 60 days.
  • Denials of rewards, and rewards of less than 10%, are reviewable in U.S. Circuit Courts of Appeals.
  • Retaliation against a whistleblower is also a violation of the Securities Exchange Act. In addition to pursuing remedies from the Department of Labor, a whistleblower can ask the SEC to commence an enforcement action.
  • Don't expect fast action on whistleblower claims.  It will take time for the Office's staff of 7 to complete work on the rewards program.
  • Help spread the word that the SEC Office of the Whistleblower is open now for business.

Dean Zerbe adds:

  • When making a submission, ask when will be a suitable time to call back to discuss it again.
  • Fraud violations are often also tax violations. If someone is accepting a bribe, what are the odds that they will be reporting it on their tax return? File a whistleblower report with the IRS too.

Supplemental statutory material for the seminar is available here.

Donna Boehme's Resource Guide on Empowered Chief Ethics and Compliance Officer (CECO) Role
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