Whether attributable to the pandemic effect of remote work, layoffs and furloughs, or the slew of recent substantial awards, the SEC’s whistleblower tip line is lighting up with greater frequency. Companies are understandably focused on the panoply of challenges to their businesses posed by the pandemic and its economic impacts, but they ignore heightened whistleblower risks at their peril.
Since April 1 of this year, the SEC has announced five large awards in rapid-fire succession totaling $104 million, bringing the total awarded since the beginning of this fiscal year in October 2019 to more than $114 million. This total includes an award of $50 million announced on June 4, which is the largest award to a single individual under the agency’s whistleblower program. The amount awarded so far in this fiscal year is more than the SEC has distributed in any full year.
The whistleblower program, created under the Dodd-Frank Act, authorizes bounties to be paid to individuals who provide original information that leads to successful enforcement actions that result in monetary sanctions of over $1 million. Since the program’s inception in 2011, the SEC has awarded more than $500 million to 83 individuals. Individuals who receive awards and the companies on which they “blow the whistle” are not disclosed and remain confidential. Announcements of awards, including multiple orders in which the Claims Review Staff declined to make awards to those who believed they were entitled to one, are available on the SEC’s whistleblower website.
The rate of tips coming into the SEC has soared. According to co-director of the Enforcement Division, Steven Peikin, in the first two months since remote work arrangements began spreading across the country in mid-March, the Commission received approximately 4,000 tips—35% more than it received in the same period last year. Lawyers close to the program speculate that as employees work away from the prying eyes and ears of their colleagues or have been furloughed or laid off, the reluctance to risk being ostracized or to just step forward may be easing. Another possibility is that the publicity about large awards has provided an incentive for employees to come forward to the SEC. Finally, because (according to co-director Peikin) many of the tips are COVID-19-related, it may be that there has been an uptick in the kind of conduct that employees believe is unlawful or inappropriate. The SEC’s Office of the Whistleblower is still getting tips in traditional areas such as accounting fraud, insider trading, money laundering and other types of alleged securities law violations.
So, what should companies do about this heightened risk? The answer is that they should make sure that the policies and procedures they have in place to encourage employees to report internally are well known within the company and that when concerns are raised internally, they are responded to and acted upon. The SEC’s April 16 report about the $27 million award announced that day stated that the whistleblower had repeatedly tried to get management’s attention about his or her concerns before going to the SEC. Pronouncements by SEC Enforcement Division senior leadership this year make clear that companies will not be able to use the COVID-19 crisis as an excuse for misconduct or for failing to follow compliance policies or failing to commit adequate resources to compliance.
Of course, with travel restrictions currently in place at many companies, conducting meaningful internal investigations of internal complaints poses particular challenges for companies with multiple sites, especially those with international operations. Several of the recent Whistleblower Program awards have had international dimensions, and with foreign governments regulating business openings and engaging in stimulus programs, the risks of bribery are likely heightened. Internal reports of serious misconduct should generally be investigated with careful document collection and in-person interviews, which may be challenging to undertake in the current environment.
Among the many challenges companies face in this new era is maintaining a strong commitment to compliance by making sure their policies and procedures are up to date based on best practices in the present reality. As always, prompt attention to internal reports or complaints about misconduct or fraud is a must in order to address misconduct promptly and convey to employees that the culture of compliance at the company remains strong.