On April 30, 2015, the Chair of the SEC, Mary Jo White, spoke at the Ray Garrett, Jr. Corporate and Securities Law Institute at Northwestern University School of Law. In her speech, “The SEC as the Whistleblower’s Advocate,” Chair White spoke of the SEC’s whistleblower awards program which she described as a “game changer.” In reviewing the four-year track record of the program, Chair White made clear that the SEC sees itself as the “whistleblower’s advocate” and admonished companies to stop wringing their hands about whistleblowers and instead support them.
Chair White’s remarks provided some clarification of the SEC’s recent enforcement action against a company for violating Rule 21F-17 by using confidentiality agreements in a way that could “stifle the whistleblowing process.” http://www.foley.com/sec-brings-enforcement-proceeding-relating-to-confidentiality-agreements-that-may-stifle-whistleblowers-04-02-2015/ While acknowledging that the action “prompted considerable discussion,” she denied that the decision created any uncertainty about the enforceability of confidentiality agreements. In her view, Rule 21F-17 does not prohibit the use of confidentiality agreements: “Companies conducting internal investigations can still give the standard Upjohn warnings that explain the scope of the attorney-client privilege in that setting.” However, confidentiality provisions must be clear so that non-attorney employees who are signing them understand that they can always report securities law violations to the Commission.
Chair White also shared that the SEC believes that some companies may be trying to require employees to sign agreements whereby they forgo any whistleblower award or require them to represent, in order to obtain a severance payment, that they have not made a prior report of misconduct to the SEC. She made clear that the SEC would take a dim view of such provisions.
Chair White also commented on the effect that the SEC’s whistleblower program has had on companies’ internal compliance programs. She recalled that when the whistleblower rules were being considered, there was a concern that if reporting internally was not a pre-condition to an award, that company’s internal compliance programs would be undermined. Even though reporting internally was not made mandatory, employees were incentivized to report internally as that can increase the amount of an award. Chair White noted that 80 percent of those receiving awards first reported their concerns internally to their compliance personnel or to their supervisors. The SEC has heard from lawyers and compliance professionals that the SEC’s program has caused many companies to enhance their internal reporting mechanisms to further encourage employees to report internally.
Chair White’s comments make clear that the SEC is committed to assisting whistleblowers both by encouraging them to come forward and by protecting them when they do. Her comments also confirm that the SEC will aggressively pursue companies that discourage or impede whistleblowers. Notably, other agencies (e.g., Department of State) also have actively been reviewing confidentiality agreements to ensure they do not discourage whistleblowing.