The SEC is proposing controversial amendments to its whistleblower program. The new rules would potentially limit the size of awards that whistleblowers are entitled from successful qui tam action. Under current directives, a whistleblower who provides information that leads to an SEC enforcement action receives 10%-30% of the recovery by the agency. This monetary provision incentivizes potential whistleblowers to disclose rather than remain silent.
Today, we expect Wall Street to be as much a part of the community as Main Street. For corporations with social responsibility commitments and investor groups with social responsibility mandates, whistleblowers are a crucial force for compliance. Whistleblowers ensure that businesses play by the rules, including those that they’ve set for themselves, as part of their social responsibility commitments. As the number of whistleblower claims rise, both in quality and scope, the potential impact of these cases on socially responsible investing, and on companies committed to and impacted by such frameworks, needs to be placed in the spotlight.
Donna C. Boehme of Compliance Strategists LLC has been named a 2018 Trust Across America Lifetime Achievement Award honoree for her outstanding achievements in the field of corporate ethics and compliance. Ms. Boehme is the first member from the compliance profession to receive this prestigious award.
On October 1, 2013, the Securities and Exchange Commission announced an award of more than $14 million to a whistleblower whose information led to an SEC enforcement action that recovered substantial investor funds. The award is the largest made by the SEC’s whistleblower program to date.
The whistleblower, who does not wish to be identified, provided original information and assistance that allowed the SEC to investigate an enforcement matter more quickly than otherwise would have been possible. Less than six months after receiving the whistleblower’s tip, the SEC was able to bring an enforcement action against the perpetrators and secure investor funds.
“While it is certainly gratifying to make this significant award payout, the even better news for investors is that whistleblowers are coming forward to assist us in stopping potential fraud in its tracks so that no future investors are harmed,” said Sean McKessy, chief of the SEC’s Office of the Whistleblower. “That ultimately is what the whistleblower program is all about.”
Stephen Kohn, Executive Director of the National Whistleblower Center stated: “This is a good first step. The SEC investigated the claim quickly and paid the reward in a timely fashion. However, the SEC must act on the hundreds of outstanding claims, broadly interpret the statute in the manner intended by Congress and award claims to whistleblowers from the numerous backlogged cases.”
By law, the SEC must protect the confidentiality of whistleblowers and cannot disclose any information that might directly or indirectly reveal a whistleblower’s identity. The SEC is also required to pay whistleblowers a reward ranging from 10-30% from all monies received in fines, penalties and disgorgements based on the information provided by the whistleblower.
Updated May 15, 2012, with an eighth way the Grimm Act would undermine the corporate whistleblower program.
Corporate criminals rejoice. The Grimm Act packs seven deadly punches for whistleblowers. This law would make it more difficult for employees to report Wall Street corruption, Ponzi schemes, and other fraud – not easier. What happened to Congress fighting fraud?
The leadership in the House of Representatives is positioning the Grimm Act (H.R. 2483) to move quickly through Congress. It’s a license to steal for Wall Street and big corporations. Here’s how:
1. Gag Orders Legalized
The Grimm Act permits companies to enforce, “any established employment agreements, workplace policies, or codes of conduct,” regardless of the impact on the right of an employee to report corporate crimes. This means that companies can force employees to sign agreements forfeiting their whistleblower rights.
2. Workplace Retaliation Legalized
“Any adverse action taken against a whistleblower for any violation of such agreements, policies, or codes shall not constitute retaliation.” It looks like retaliation, smells like retaliation, but it’s not retaliation. (Emphasis added to the bill text.)
3. Law Enforcement Crippled
The Grimm Act requires the SEC to, “promptly notify any entity that is to be subject to [an investigation]” before beginning an investigation. Tipping off companies suspected of violating the law allows the corporations to intimidate witnesses and tamper with evidence before the investigation begins.
4. Whistleblower Anonymity Destroyed
The Grimm Act allows, and in most cases requires, the SEC to, “disclose to the employer’s audit committee such information provided by the whistleblower.” This means that the SEC would not only be unable to guarantee confidentiality, but it would be required to turn whistleblowers over to the very corporations accused of wrongdoing.
5. Corporate Accountability Minimized
The Dodd-Frank Act provides incentives for companies to self-report violations, including reduced fines and penalties. The Grimm Act creates a gaping loophole, allowing companies to claim they self-reported even when a whistleblower makes a report to the SEC. This applies even if the company initially covered up problems and retaliated against the whistleblower.
6. Most Whistleblowers Disqualified
People found guilty of fraud are reasonably excluded from obtaining the benefits of the new SEC whistleblower program. However, the Grimm Act disqualifies employees who in any way “participated in” a violation. This subtle-but-deliberate disqualification in the Grimm Act would cut out the vast majority of whistleblowers from protection, as almost every whistleblower “participates” in the violations they uncover. Think of all the low- and mid-level employee¬s, such as secretaries who take phone calls and clerks who make photocopies. These people are “participating” in violations, and are therefore disqualified from the whistleblower program.
7. Awards Program Broken
The Grimm Act makes whistleblower awards discretionary, returning the SEC whistleblower program to its pre-Dodd Frank Act status. That version of the program was completely discredited by a 2010 report by the SEC Inspector General. The report showed that the SEC helped only five people and awarded only $159,537 during 20 years of operating a discretionary program. The report lamented that the discretionary program was, “not fundamentally well-designed to be successful,” and made recommendations that were implemented by the Dodd-Frank Act. The Grimm Act turns back the clock.
8. Justice Obstructed
The Grimm Act requires employees to make reports about their bosses to their bosses before going to law enforcement. As it turns out, this is the definition of obstruction of justice, a crime that packs a severe punishment. The federal obstruction of justice statute calls for prison sentences of up to 20 years for those who, bear with me now, "hinder, delay, or prevent the communication to a law enforcement officer or judge of the United States of information relating to the commission or possible commission of a Federal offense." Yes, laws are a bit wordy, but there’s not much wiggle room here. The Grimm Act undermines the fundamental right for citizens to report wrongdoing to law enforcement. It’s an obstruction of justice.
If you want your Member of Congress to fight fraud and protect your investments, take action and ask them to oppose Wall Street’s license to steal. Share your thoughts about the Grimm Act in the comments.
Calling 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.
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.
The NWC is gearing up for our special seminar tomorrow in Washington, D.C. at the Willard Intercontinental Hotel, entitled “The NEW Corporate Whistleblower Protections and Rewards Provisions.” The entire NWC staff and I are looking forward to attending this open discussion on the newest whistleblower protection laws, which is also available via conference call.
We’re excited to offer you the chance to hear from a host of experts on the field. It is a rare opportunity to meet the Chief of the SEC Whistleblower Office, Sean McKessy, who will be conducting an hour-long session on how the new office will be upholding SEC’s recently adopted whistleblower rules. I am personally looking forward to hearing from Sean McKessy because the NWC’s legal staff and I were extensively involved in the Dodd-Frank rulemaking process. In addition, NWC Executive Director Stephen M. Kohn will present a session on important whistleblower laws. Other honored speakers include Donna Boehme (Principal of Compliance Strategies LLC) and Dean Zerbe (former Tax Counsel on the Senate Finance Committee and current Managing Director of Alliant Group).
It will be exciting for all to see how these new rules can provide greater employee protection and larger financial rewards. We will bring attendees up to speed on the latest whistleblower provisions and equip them with the legislative tools needed to effectively represent their clients. There is still time to register online by clicking here.
The NWC staff and I hope to see you tomorrow from 1:00 to 4:00 pm EST!
On July 20th, the Chief of the SEC Whistleblower Office, Sean McKessy, will be speaking at the National Whistleblowers Seminar at the prestigious Willard Intercontinental Hotel in Washington, DC and via conference call. Take advantage of this special seminar and hear from leading whistleblower attorneys who were extensively involved in the Dodd-Frank rulemaking process and the head of the SEC’s Whistleblower Office.
Stephen M. Kohn (Executive Director of the National Whistleblowers Center), Donna Boehme (Principal of Compliance Strategies LLC) and Dean Zerbe (former Tax Counsel on the Senate Finance Committee and current Managing Director of Alliant Group) join Chief McKessy on the panel for this discussion on the newest whistleblower protections.
Because of this special nationwide training opportunity, the NWC is making the seminar available for teleconference. The event is entitled “The NEW Corporate Whistleblower Protections and Rewards Provisions” and will run from 1:00 pm to 4:00 pm (EDT) on Wednesday, July 20th. Attorneys will have the opportunity to learn how to use the new corporate whistleblower laws to effectively represent employees, combat fraud, and qualify for large whistleblower rewards. The seminar will explain the new anti-retaliation rules governing corporate employees and the financial reward provisions that require the SEC to pay large financial awards to qualified whistleblowers.
To REGISTER NOW click here. The regular price for the seminar is $295 with reduced fees for ARS members and whistleblowers. For discounts and more information, including agenda and faculty click here.
Tomorrow, June 28th, NWC Executive Director Stephen M. Kohn will present his Corporate Whistleblower CLE seminar in Downtown Los Angeles at Carlsmith Ball LLP. Space is still available for this special seminar. The event will run from 10:00 am to 1:00 pm (PDT), and will focus on the new Dodd-Frank corporate whistleblower provisions adopted by the SEC and will also cover the Sarbanes-Oxley Act and other relevant whistleblower statutes. In addition, participants in this Los Angeles seminar will be offered the unique opportunity to teleconference in free of charge to the NWC’s Washington, DC seminar featuring SEC Whistleblower Chief Sean McKessy on July 20th. Those who wish to sign up should visit our website or call (202) 342-1903 for more information on the seminar.