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SEC Whistleblower Program: Risks vs Rewards

Posted by Larry Doyle on July 22, 2014 7:50 AM |

If you became aware of unethical and likely illegal practices at your company, would you consider ‘blowing the whistle?’ This question is a daunting proposition filled with very real risks that should be measured against potential rewards.

Given the risks and unpleasant real life experiences of many whistleblowers on Wall Street, I firmly believe and recommended in my book that Congress should establish a privately staffed Office of Whistleblower Protection. Some may think that is overreach. I don’t. Others in much greater proximity to the ‘whistles’ would seem to share my view that blowing the whistle is a high risk proposition deserving of increased protection.

Let’s navigate. 

The SEC would like to tout the fact that for both 2012 and 2013 more than three thousand tips were received under its Whistleblower Program established as a result of Dodd-Frank. Yet a full 4 years since the passage of that legislation and 3 years since the launch of this program, 8 awards have been made and, in my opinion, only one of very real substance (a $14 million award made). Would you consider that a robust record? Where’s the beef?

We had been led to believe in a June 2013 Forbes review that despite the paucity of awards to that point that the “Larger Ones Are Coming.”  In hindsight, Forbes and the SEC might be gently chided for a lack of proper grammatical context in that review as the title should have read the “Larger One Is Coming.”

So back to my original question. Would you blow the whistle?

If you are considering doing so, I strongly encourage you to read chapter 9 in my book which details how selected high profile whistleblowers in and around Wall Street and Washington were ignored, intimidated, and/or ultimately fired as they tried to do the right thing. Those very real risks would seem to remain prevalent as evidenced by a release put out just yesterday by a coalition led the Government Accountability Project and the law firm of Labaton Sucharow:

Coalition Petitions SEC to Ban Corporate Tactics Used to Silence Whistleblowers
(Washington, DC) On the fourth anniversary of the Wall Street Reform and Consumer Protection Act, better known as Dodd-Frank, Labaton Sucharow LLP, the Government Accountability Project (GAP) and a growing coalition, representing more than 250 organizations and nearly two million citizens, announce they have submitted petitions with the Securities and Exchange Commission (SEC) demanding a strengthened Whistleblower Program.

The SEC Whistleblower Program offers eligible whistleblowers the ability to report anonymously, robust employment protections and the opportunity to earn substantial monetary awards – regardless of nationality. A recent Wall Street survey, commissioned by Labaton Sucharow, found that financial services professionals were aware of unethical and illegal behavior in the workplace (23%), willing to report possible violations with the protections and incentives offered by the Program (89%) and knew about the existence of the Program (60%, up from 49% just one year earlier).

“As awareness and interest in the SEC Whistleblower Program and other similar programs has grown, they have come under stealth attack by Corporate America,” said Jordan Thomas, Chair of the Whistleblower Representation Practice at Labaton Sucharow and a former Assistant Director in the SEC’s Enforcement Division. “If the SEC doesn’t adopt appropriate counter-measures, gag orders, retaliation and other forms of legal bullying will quickly erode the potential of this powerful investor protection tool.”

The first petition (rulemaking proposed by Labaton Sucharow and GAP, summary here) addresses unscrupulous legal maneuvers employed by many companies trying to silence potential whistleblowers. Examples include: preventing employees from consulting independent legal counsel, requiring notice of external reporting, demanding waivers of any future whistleblower awards, and threatening lawsuits to enforce secrecy agreements. These and other troubling legal tactics effectively topple each of the three pillars of the SEC Whistleblower Program – anonymous reporting, employment protections and monetary awards. This petition provides companies with clear guidance regarding these problematic employment agreements. The petition also urges the SEC to issue a policy statement regarding the current scope of employment protections available to SEC whistleblowers and its intent to prosecute companies that retaliate against them.

“Virtually every corporation in America has internal policies that encourage employees to report wrongdoing and promise to protect them from retaliation for doing so,” said Tom Devine, GAP Legal Director and author of The Corporate Whistleblower’s Survival Guide. “The problem is the reality gap between what these organizations say and what they do, because they have not been held accountable. Currently, corporations have little or nothing to lose from legal bullying. The worst that can happen is they won’t get away with it. The SEC can change this.”

If the SEC can change this, then 1. why didn’t those charged with protecting the public interest foresee these risks from developing — or dare I say perpetuating — and prevent them in the first place? 2. what are they doing about these risks now?

Lack of strong, meaningful action on this front by the SEC and Congress as well strikes me as meaning one thing: the commission and our pols remain justifiably accused of lying ‘in bed with Wall Street.’

Navigate accordingly.

Larry Doyle

Please order a hard copy or Kindle version of my book, In Bed with Wall Street: The Conspiracy Crippling Our Global Economy.

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  • From the statement put out by the Government Accountability Project:

    “As Dodd-Frank has steadily increased the probability of detection, companies have become more sophisticated and aggressive in their efforts to discourage employees from reporting possible violations to the S.E.C. and other authorities. The legal countermeasures being deployed include a variety of employment, severance and settlement agreements that weaken both new and existing whistle-blower programs.

    It was no isolated aberration that KBR, one of the nation’s largest government contractors, required employees seeking to report fraud to sign internal confidentiality agreements prohibiting them from reporting violations to law enforcement authorities. Rather, it reflects a growing trend of companies trying to silence whistle-blowers, at the same time Congress strengthens their rights.

    Examples include: failing to educate employees about the S.E.C. whistle-blower program and their rights, unlike other corporate, state and federal programs; preventing employees from consulting legal counsel through the use of nondisclosure agreements, effectively eliminating their ability to file anonymously in accordance with S.E.C. rules; exploiting corporate whistle-blowers’ fear of retaliation and blacklisting by requiring notice of external reporting, in violation of their right under Dodd-Frank and S.E.C. rules to report anonymously; de-incentivizing tips by making employees sign agreements waiving any future monetary awards for blowing the whistle; and intimidating potential whistle-blowers with lawsuits to enforce secrecy agreements, a battle few whistle-blower have the desire and resources to fight.”






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