The SEC has increased the scope of its whistleblower award program in a significant way, by issuing a $700,000 award to a “company outsider.”
What you need to know:
The SEC recently awarded $700,000 to an outside industry expert whose “detailed analysis” of a company’s alleged misconduct helped the SEC bring a successful enforcement action. Although the identity of the expert and the company remain anonymous per federal law, this precedent clearly represents a major shift in employers’ potential whistleblower liability. Until last week, the SEC had only given whistleblower awards to companies’ internal employees. Now, however, outside industry experts or market analysts may be eligible for rewards by providing the SEC with leads about a company’s misconduct. This gives these outsiders a new incentive to issue complaints to the SEC. In a press release, Andrew Ceresney, Director of the SEC’s Enforcement Division, noted that “the voluntary submission of high-quality analysis by industry experts can be every bit as valuable as first-hand knowledge of wrongdoing by company insiders. . . . We will continue to leverage all forms of information and analysis we receive from whistleblowers to help better detect and prosecute federal securities law violations.” By expanding the pool of eligible whistleblowers, the SEC’s recent award will expose employers to a vastly expanded landscape of exposure and risk.
What you need to do:
Employers’ best defenses against this newly expanded whistleblower risk are effective investigations protocols and integrated complaint-response systems which promptly identify, investigate and remedy any allegation of corporate wrongdoing. Therefore, employers should review their complaint and investigation protocols to ensure that every compliance issue is promptly and thoroughly investigated. Employers should also design transparent and effective compliance programs which identify issues before they can become the subject of a whistleblower’s complaint. For guidance on what constitutes best practices for compliance programs, see OSHA’s draft guidelines, which earlier this week closed for public comment.