How the SEC’s $14 Million Whistleblower Award Can Buy You Peace of Mind – If You Act Now

Earlier this month, the Securities and Exchange Commission announced that it had awarded an anonymous whistleblower $14 million for a tip that led authorities to recover a substantial amount of funds.

The award is only the third payment made under the agency’s whistleblower bounty award program since its creation three years ago under the Dodd-Frank Act. But it’s not likely to be the last, write attorneys John Carney and Kendall Wangsgard of BakerHostetler:

“Nearly 50 cases for 2013 alone are eligible for whistleblower awards, and, at last report, the program has more than $450 million in funding. Both are signs of more frequent and larger payouts yet to come. While it remains to be seen whether awards in the near future will approach or even top Tuesday’s high-water mark, it is clear that the program has been a useful incentive for encouraging individuals with information to disclose it to the SEC.”

That translates into more SEC investigations – and enforcement actions – directed toward US corporations. What can you do to reduce the risk of SEC scrutiny? From attorneys on JD Supra:

1. Make reporting of suspected wrongdoing a requirement:

“Companies should make clear that employees are expected to report concerns about potentially illegal conduct and violations of company policy, and that this is an important component of their responsibilities to their employer. Good-faith reports should be encouraged, even if they may ultimately prove to have been mistaken.” (Luke Cadigan, Stephen Korotash, and Matt Morley at K&L Gates)

2. Step up communication and training:

“Make sure that everyone knows about your internal reporting methods – including your ethics hotline. Make sure that your employees know you are committed to protecting them when they step forward, and won’t tolerate retaliation—this means training.” (Ingrid Fredeen at NAVEX Global)

3. Make it easy to file reports:

“Employees are more likely to use a reporting process that is clear – specifies how reports should be made, how they can be processed anonymously (if desired), and who will be responsible for subsequent processing and investigation of reports.” (Cadigan, Korotash, and Morley at K&L Gates)

4. Review and enhance internal controls:

“Robust internal financial and disclosure control processes can prevent many possible securities law violations from occurring, and a strong internal audit function not only can deter violations, but also can ferret out and address problems before they escalate.” (Michael Asaro and Bruce Mendelsohn at Akin Gump)

5. Show employees the full picture:

“While companies need to preserve sufficient flexibility to respond appropriately in a wide range of circumstances, there may be value in explaining who will determine the company’s response to the report and who will direct any subsequent investigation. Employees may derive particular comfort from knowing that persons implicated in any potential wrongdoing, particularly senior managers, will not be directing the company’s response to the report.” (Cadigan, Korotash, and Morley at K&L Gates)

The updates:

Read more on Whistleblower developments at JD Supra Law News>>

[image credit: Wikipedia]