The whistleblower program included in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 owes its success in large part to the support of the Securities and Exchange Commission (SEC).
Payments totaling more than $50 million have been awarded to whistleblowers under Dodd-Frank, Forbes reports. In addition, the SEC has appeared as amicus curiae (friend of the court) in support of whistleblowers seeking protection under Dodd Frank’s anti-retaliation provisions, and the agency has pursued actions against companies that retaliate against whistleblowers or attempt to prevent whistleblowers from bringing tips to the agency. In a recent speech at Northwestern University School of Law, Mary Jo White, the SEC chair, dubbed her agency “the whistleblower’s advocate.”
Since its inception in 2011, the SEC’s Office of the Whistleblower has received thousands of tips from whistleblowers from within the U.S. and from sixty foreign countries. White said these tips “are of tremendous help to the [SEC] in stopping ongoing and imminent fraud, and lead to significant enforcement actions on a much faster timetable than we would be able to achieve without the information and assistance from the whistleblower.” The program has “created a powerful incentive for companies to self-report wrongdoing to the SEC,” White said. If companies do not report themselves, the agency may hear about their conduct from someone else, according to Forbes. Although fewer than 20 whistleblowers have received monetary awards, the SEC encourages whistleblowers to continue to provide information and officials say the SEC will do its utmost to protect whistleblowers from retaliation.
The first retaliation case involved the former head trader for Paradigm Capital Management. He received a $600,000 award, which constituted thirty percent of the amount collected from Paradigm and is the maximum award payable under the Dodd-Frank Act. The whistleblower reported trading activity that revealed improper principal transactions and he was immediately demoted, according to Forbes. White said, “the SEC take[s] these whistleblower protections very seriously and companies should too.”
The SEC’s Enforcement Division has focused on the use of confidentiality agreements or other such mechanisms “to improperly stifle whistleblowers from coming forward,” White said. She referred to an SEC enforcement action against a company that required internal investigation witnesses to sign confidentiality statements that included a warning that employees who discussed the subject matter of the interviews with outside parties without prior permission could face discipline. Companies should ensure that employees understand that “it is always permissible to report possible securities law violations to the Commission,” White said.
The SEC has filed amicus curiae briefs in cases pending before the Second and Third Circuit Courts of Appeals involving whistleblowers who were terminated as a result of having made internal reports of suspected misconduct, Forbes reports. In both cases, the SEC “advocates” that a whistleblower who reports suspected misconduct only to his employer but not to the SEC is a “whistleblower” entitled to the protection of the Dodd-Frank Anti-Retaliation provision.