The Commodity Futures Trading Commission awarded its largest whistleblowing award to date – US $30 million – for providing key information that led to a successful enforcement action. According to the website of The Siedle Law Offices (click here to access), the CFTC’s award was given to a person who provided information to the CFTC and the Securities and Exchange Commission that led to the agencies’ filing and settling of enforcement actions in 2015 naming JPMorgan Chase Bank, N.A. for non-disclosed conflicts of interest. The enforcement actions were brought over JPMorgan’s alleged failure to notify clients of the bank’s wealth management business of its preference – because of economic incentives – to invest client funds in certain commodity pools, hedge funds and mutual funds managed and operated by an affiliate, or in similar third-party-managed vehicles that provided payments to the bank. JP Morgan resolved both actions by agreeing to pay an aggregate fine of US $167.5 million, disgorgement of US $127.5 million and almost US $12 million in prejudgment interest. (Click here for details in the article “Bank Sanctioned US $307 Million by CFTC and SEC for Alleged Conflicts of Interest in Investing Clients’ Funds” in the December 20, 2015 edition of Bridging the Week.)
Separately, the Securities and Exchange Commission proposed numerous amendments to its whistleblower rules. Among other things, the SEC proposed to authorize awards to whistleblowers based on deferred prosecution agreements and non-prosecution agreements entered into by the United States Department of Justice or a state attorney general in a criminal case, or a settlement agreement entered into by the SEC other than in a judicial or administrative proceeding to address violations of securities laws; to potentially round up awards that are less than US $2 million to US $2 million (subject to the 30 percent statutory cap of total monetary sanctions collected) in order to “sufficiently [incentivize] future whistleblowers;” and to potentially reduce very large awards where total monetary sanctions are at least US $100 million (subject to the 10 percent minimum statutory level and never below US $30 million) “to make sure that the Commission is a responsible steward of the public trust while continuing to provide strong whistleblower incentives.”
Culture and Ethics: Companies should encourage internal whistleblowing to help identify potential wrongdoing early. This requires the adoption of robust policies and procedures, and potentially, a reward program of some kind. However, such policies and procedures must be carefully drafted to avoid any suggestion that external whistleblowing is discouraged.
During the last years when I served as Group General Counsel of Fimat and Newedge, I proactively encouraged my own worldwide staff at every year-end to report to me in writing – even anonymously – anything that kept them awake at night. I found this an excellent device to gain an early warning of potential issues within our company.
It is in a company’s best interest that employees feel comfortable reporting all potential wrongdoing without fear of retaliation. If employees do not feel that level of comfort, it is more likely than not they will report incidents of wrongdoing in the first instance to government agencies where they can potentially be lucratively rewarded for their information.
How firms sanction senior level wrongdoing also sends a critical message to employees. It is important for firms to apply the same standards and commensurable penalties in addressing wrongdoing by the most senior level officers as by the most junior staff.