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Proposed SEC Whistleblower Rule And Your Company's Compliance

The Securities and Exchange Commission recently proposed a change to how it rewards private citizens who blow the whistle on securities violations under the Dodd-Frank Act. Under the proposal, the commission would have the discretion to increase some whistleblower awards beyond the 30-percent statutory maximum, up to $2 million. It would pay for this by discretionarily reducing some of the larger awards.

According to the Society for Human Resource Management, between the whistleblower program's inception in 2011 and 2017, the commission received 22,000 tips that led to enforcement actions. As a result, the SEC has recovered $1.4 billion. Fifty-five whistleblowers received a total of $266 million in awards. However, just four people received about $112 million of that total.

The proposal would allow the SEC to increase the lower awards when doing so would incentivize future whistleblowers. When an enforcement action would yield a total of $100 million in sanctions, the commission would have the authority to reduce the whistleblower's share. The payout would still be subject to the 10-percent minimum and would not fall below $30 million.

How Should This Affect Your Culture?

Retaliation against Dodd-Frank whistleblowers is illegal, as long as the whistleblower makes a report to the SEC. However, the U.S. Supreme Court ruled earlier this year that whistleblowers who only make internal complaints are not protected by the anti-retaliation provisions of the Dodd-Frank Act. Therefore, there is a legal incentive for employees to bypass internal complaint procedures and head straight to the SEC.

It may be tempting to clamp down and try to prevent whistle-blowing, but your organization may find more success by creating a compliance-centered culture. Most employers would prefer these issues to be raised internally, but that won't happen if potential whistleblowers suspect they will be branded as disloyal and treated as the problem.

Most whistleblowers are as interested in doing the right thing as they are in obtaining a lucrative settlement. Taking that into consideration, focus your efforts on encouraging people to police compliance in-house. Provide multiple avenues for raising concerns, including an anonymous reporting option.

Executives at the leadership level will need to be explicit about the desire for compliance. They need to say out loud that the company values compliance and expects every employee to report irregularities. They also need to be clear that doing so is valued behavior and will not be met with retaliation. The stakes are high. If your efforts aren't credible, employees are highly incentivized to skip internal reporting and proceed straight to the SEC, where they are protected by law.

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