In its annual report to Congress, SEC’s Office of the Whistleblower states it received 3,620 tips from eligible whistleblowers, up almost twelve percent from the 3,268 tips received last year. It also returned 2,731 phone calls from the public and authorized nine payouts, bringing the total number of payouts to fourteen since the program’s inception three years ago. In other words, it was a banner year for the Dodd-Frank Act’s whistleblower program.
Sean McKessy, head of the Office of the Whistleblower, says that awards made this year drive home an important message. Companies not only need to have internal reporting mechanisms in place, but they must act upon credible allegations of potential wrongdoing when voiced by their employees.
He notes that one award this year went to a whistleblower who had worked aggressively internally to bring the securities law violations to the attention of appropriate company personnel. The whistleblower brought the information to the SEC only after the company failed to take corrective action. Another whistleblower award went to a company employee with audit and compliance responsibilities who first reported the securities violation internally. The employee reported the violation to the SEC only after the company failed to take appropriate, timely action in response to the information.
Not surprisingly, the majority of whistleblowers are current or former company employees, contractors, or consultants to the organization. According to the annual report, over 80% of the award recipients who were current or former employees raised their concerns internally to their supervisors or compliance personnel before reporting the suspected wrongdoing to the Commission. They did so only after the company did not take steps to address or remedy the reported situation.
Failure to respond to allegations is not a good business practice. Neither is retaliation against whistleblowers.
This year the SEC brought its first enforcement action under the anti-retaliation provisions of the Dodd-Frank Act. In that case, as summarized in the annual whistleblower report, the head trader of Paradigm Capital Management told the SEC that the company had engaged in prohibited principal transactions. After learning the head trader had reported the potential misconduct to the SEC, the firm engaged in a series of retaliatory actions. It changed the whistleblower’s job function, stripped the whistleblower of supervisory responsibilities, and otherwise marginalized the employee. The Commission ordered the firm to pay $2.2 million to settle the retaliation and other charges.
Congress passed the Dodd-Frank Act as part of an effort to control excesses in the financial industry. But some of its provisions enforce common sense behavior, regardless of industry.
Common sense and good business practice should cause any organization to want to identify and eliminate fraud and unethical behavior. Necessary tools include internal reporting mechanisms such as ethics hotlines, procedures that support timely investigation and appropriate response to internal allegations, and strictly enforced anti-retaliations policies.
Ethical Advocate provides comprehensive ethics and compliance solutions, including ethics and compliance training and confidential and anonymous hotlines, meeting regulatory and reporting needs such as those encouraged by the Dodd-Frank whistleblower provisions. Contact us for more information.
SEC. 2014 Annual Report to Congress on the Dodd-Frank Whistleblower Program, November 17, 2014. http://www.sec.gov/whistleblower