Regulators are getting more serious about encouraging whistleblowers to come forward with their tips and protecting them from retaliation.
Last month, the heads of the whistleblower offices of the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Department of Labor came together to share the latest developments of their whistleblower programs in a Webcast.
Among their observations were that rules to protect against whistleblower retaliation have been strengthened and regulators intend to aggressively pursue companies that violate those rules.
The Dodd-Frank Act, for example, prohibits retaliation by companies against whistleblowers who report securities law violation concerns and authorizes the SEC to enforce these protections. “This has not historically been an area that we've focused very much of our attention on, if at all,” said Sean McKessy, chief of the SEC's Whistleblower Office.
Although the SEC has yet to bring any whistleblower retaliation cases, don't expect that to be the case for long. “We are actively on the lookout for our first opportunity to exercise that authority,” said McKessy. “I would not be surprised at all in our report to Congress by the end of this fiscal year that we might have some developments to talk about in terms of exercising our anti-retaliation authority.”
According to McKessy, the SEC held a training course last month for all enforcement staff nationwide, much of which focused on encouraging staff to be on the lookout for allegations of retaliation against whistleblowers for reporting potential securities law violations, he said.
More Awards on the Way
McKessy also indicated that more whistleblower awards are in the pipeline. “I anticipate by the end of the fiscal year, there will be more news to report on payouts that we will make in the coming months, before the end of this fiscal year in September,” he said.
In addition to new cases resulting in whistleblower payouts, the SEC continues to work on collections in connection with existing payouts. Last month, for example, the SEC made an additional $150,000 payout on top of the initial $50,000 award issued to the first-ever whistleblower under Dodd-Frank in August 2012. “As we collect [additional funds from securities law violators], we will be making additional payouts to current whistleblowers,” said McKessy.
He also spoke about the current success of the SEC's whistleblower program, which has been “extraordinarily helpful to the Enforcement Division's efforts,” he said. Since the rules took effect in August 2011, the SEC's Office of the Whistleblower has received a total of more than 7,000 whistleblower tips, complaints, and referrals (TCRs) from across the United States and over 40 countries.
“The program is off to a strong start,” said McKessy. “To date, we have made payouts to six individuals in connection with four different cases.”
Despite concerns expressed by companies that the SEC's Whistleblower Office would undermine internal compliance programs, McKessy said those concerns don't appear to be well-founded. “The vast majority of employees really don't want to go outside the company when they're aware of an issue and prefer to have things resolved in-house,” he said.
“I anticipate by the end of the fiscal year, there will be more news to report on payouts that we will make in the coming months, before the end of this fiscal year in September.”
—Sean McKessy,
Chief of the Whistleblower Office,
SEC
Most individuals who reported potential securities laws violations against their current or former employers, added McKessy, came to the SEC only after feeling as though the company's compliance program let them down in some way. If anything, the SEC's Whistleblower Program has positively influenced some companies by encouraging them to take a fresh look at their compliance programs, he said.
CFTC Developments
Like the SEC, the CFTC is also collecting a steady flow of tips through its bounty-paying whistleblower program. “It's been a slower start for us—but understand that the footprint of the CFTC is significantly smaller than that of the SEC,” said Christopher Ehrman, director of the CFTC's Whistleblower Office. “That being said, the complaints that are coming in are typically very high quality.”
To date, the CFTC has not awarded any whistleblowers, but Ehrman said he expects that to change in the near future. “I anticipate that we will pay our first award this fiscal year, if not two awards this fiscal year,” he said.
“These cases often take a tremendous amount of time,” Ehrman added. As complex as the SEC's cases can often be, “the CFTC's cases can often be more complex,” and they require very robust investigations that take a lot of time, he said.
Ehrman stressed that most corporate insiders, similar to those who report securities law violations to the SEC, came to the CFTC only after attempting to engage their internal compliance departments, and they did not feel like their concerns were addressed.
Not all whistleblowers, however, are corporate insiders, Ehrman added. Many who approach the CFTC are market participants, who have no other avenue to report misconduct other than to go directly to the CFTC.
OSHA Developments
The Department of Labor's Occupational Safety & Health Administration is also seeing a record number of complaints pouring into the agency. These numbers have steadily increased over the past five years. OSHA received 2,691 whistleblower complaints in fiscal year 2011, 2,883 complaints in fiscal year 2012, and 2,907 complaints in fiscal year 2013.
WHISTLEBLOWER ACTIVITY
The chart below from OSHA provides the numbers of whistleblower complaints filed within the last ten years.
Source: OSHA.
Fiscal year 2013 marked the first year since 2006 that OSHA completed more investigations than the number of complaints received, “which is reducing our backlog,” said Anthony Rosa, acting deputy director for OSHA's Whistleblower Protection Programs.
When it comes to whistleblower complaints filed under the Sarbanes-Oxley Act, in particular, OSHA received 175 complaints in fiscal year 2013, said Rosa. In comparison, whistleblower complaints under the Dodd-Frank Act are coming in at a much slower pace.
OSHA received only 14 Dodd-Frank-related complaints in fiscal year 2012, and 28 in fiscal year 2013. “We really haven't got that far in getting a lot of complaints under the Consumer Financial Protection Act,” said Rosa. OSHA settled 38 Sarbanes-Oxley whistleblower cases in 2013 for a total of $9.3 million, and it reached five settlements under Dodd-Frank for a total of $87,000.
Rosa said that OSHA is also working to shorten the time needed to settle whistleblower complaints from months to weeks. In October 2012, OSHA initiated an alternative dispute resolution process pilot program in two of its regions. “It's been very successful in terms of getting early resolution of our cases before an investigation is initiated,” he said.
During fiscal year 2013, 289 requests were made by employers or employees in those pilot regions to attempt a settlement through alternative dispute resolution. Both parties consented in 87 of those cases, resulting in 54 settlements. “We are in the process of expanding that nationwide because of the success that has ensued,” said Rosa.
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