The letter echoes concerns that we, along with the Government Accountability Project, first raised in a July Op-Ed in the New York Times DealBook. Along with GAP and 250 other organizations, we have submitted a petition, urging the SEC to hold a series of hearings around the country to discuss the problem of workplace retaliation and explore new ways to increase reporting, internally and externally. It also asks the agency to create an advisory committee on whistleblower reporting and protection; to recommend program improvements and best practices; and engage in appropriate rule-making to clarify and strengthen whistleblower protections. This is a serious issue and we are glad Congress has taken notice of our efforts.
Please feel free to view the petition here - and, as always, don’t hesitate to reach out with any questions or concerns.
In FY 2014, the SEC awarded some $35 million to 9 whistleblowers, including the largest award to date, more than $30 million paid to a whistleblower living in a foreign country. Notably, that award represented less than the 30% maximum allowed under the program—because the whistleblower delayed coming forward to the SEC.
So while we share the agency’s enthusiasm, and salute a record-setting year, we are mindful that our work to educate whistleblowers continues. For more information on who can be a whistleblower and why timing matters in reports to the SEC, please feel free to see this video or to reach out to us directly.
By Jordan A. Thomas and Jennifer D. Larson
Achievements, Challenges and Change: A Look at the Past, Present and Future of the SEC Whistleblower Program
Is the program working? Are whistleblowers strengthening corporate compliance programs? Will the program be a game-changer in securities enforcement? What makes corporate whistleblowers successful?
We invite you to read our Year in Review, a report that examines the major developments related to the SEC Whistleblower Program over the past 12 months and how these developments are likely to impact the future of corporate whistleblowing and how responsible organizations do business.
The Best Way to Honor Whistleblowers on National Whistleblower Appreciation Day? Do More to Protect Them
Now, we are partnering with GAP and a growing coalition, representing more than 250 organizations and nearly two million citizens, to urge the SEC to take action to protect SEC whistleblowers from retaliation and other attempts by employers to restrict their employees’ rights to participate in the SEC Whistleblower Program. We believe that this important effort will help protect and strengthen the SEC Whistleblower Program. For more information or to get involved, please click here.
The BNP settlement is notable not just for its huge size and the Department of Justice’s insistence that the bank admit guilt, but also because the investigation appears to have been substantially aided by whistleblowers. According to the New York Times, a whistleblower alerted authorities that BNP was violating U.S. embargoes in 2009. The investigation was also assisted by Stephen Flatlow, who uncovered the fact that a purported charity in New York was actually a front for the Iranian government while pursuing civil charges against Iran for the death of his daughter in a bus bombing. Likewise, the Statement of Facts filed by the Department of Justice suggests that an internal whistleblower (along with several compliance officials and some outside lawyers) expressed concern within BNP about its illegal conduct, but that these warnings were ignored.
While the BNP case is not an SEC action, this case underscores the extremely meaningful impact that just one whistleblower can make. It also shows that companies like BNP should give careful attention to internal whistleblowers, who often give companies a valuable opportunity to resolve problems before they reach disastrous proportions.
SEC Settles $2.2 Million Enforcement Action Following Whistleblower Complaint by Labaton Sucharow Client
According to the SEC’s order, Paradigm, at the direction of Weir, engaged in a series of transactions with a broker-dealer called C.L. King when trading on behalf of a hedge fund client. C.L. King is also controlled and majority-owned by Weir, meaning that affiliated entities stood on both sides of these transactions. Under Section 206(3) of the Investment Advisers Act, an adviser like Paradigm must disclose such principal transactions to their client – here, the hedge fund – and obtain client consent before proceeding. Paradigm failed to satisfy these important disclosure and consent obligations, which are designed to ensure that clients are protected from self-dealing and possible conflicts of interest.
Additionally, Paradigm failed to disclose in its Form ADV that a “conflicts committee” – which it had ostensibly established for the purpose of mitigating possible conflicts like those posed by the principal transactions – was itself conflicted. According to Julie Riewe, the co-chief of the SEC Enforcement Division’s Asset Management Unit, “Paradigm’s use of a conflict committee denied its hedge fund client the effective disclosure and consent to which it was entitled. Advisors to pooled investment vehicles need to ensure that any mechanism developed to address conflicts in principal transactions actually mitigates those conflicts.”
We’re very pleased that this case resulted in a successful settlement for the SEC: it’s one of a growing number of signs that the SEC Whistleblower Program is effectively helping the SEC detect, investigate and prosecute securities violations that might otherwise have remained under the radar. The process of being an SEC whistleblower isn’t often easy, but, as this settlement shows, coming forward can make a difference both for the SEC and for investors.
By Jordan Thomas and Vanessa De Simone
This latest award suggests the SEC is beginning to complete investigations sparked or aided by the first wave of whistleblower tips received after the implementation of the SEC Whistleblower Program rules in August 2011. Given that SEC investigations typically take two to four years to complete – with larger and more complex cases often falling on the far end of that range – we expect to see an increasing number of significant awards in the coming months, as more cases work their way through the investigative pipeline. We applaud the whistleblowers in this case for coming forward and making a difference, and look forward to hearing more positive news from the SEC.
By Jordan Thomas and Vanessa De Simone
As this article reflects, whistleblowers can face a very real risk of retaliation in the workplace. The good news, though, is that the Dodd-Frank Wall Street Reform and Consumer Protection Act and related laws do offer robust and effective protections for individuals who report misconduct to the SEC. In our view, the most important of these is the ability to report anonymously – as we noted in the article, the best protection against retaliation is if the whistleblower’s company has no idea that he or she blew the whistle. Therefore, reporting anonymously, as the SEC Whistleblower Program allows people to do, if they are represented by an attorney, goes a long way in stopping retaliation before it can start. While we certainly respect the courageous decision of Dr. Ben-Artzi and the other whistleblowers profiled in the article to publicly identify themselves, many SEC whistleblowers find that they are better able to protect their careers by remaining anonymous.
Ultimately, this article shows that the choice to become a whistleblower (and whether or not to do so anonymously or openly) is a deeply personal one. We’re gratified that Dr. Ben-Artzi was quoted as saying that, although his path as a whistleblower has sometimes been difficult, he has no regrets and that “I don’t think I could have or should have done anything else.” Our hope is that all whistleblowers who come forward can do so without regrets – a goal that can only be achieved if whistleblowers enter the process with their eyes open, fully understanding the risks, rewards and options available to them.
By Jordan Thomas and Vanessa De Simone
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Jordan A. Thomas
SEC Whistleblower Advocate
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