Whistleblowers Coming Forward in Huge Numbers: Boston SEC Reports Flood of Tips

Jordan Thomas - Tuesday, September 22, 2015
In highly encouraging news for investors and market integrity, the SEC’s Boston regional director, Paul Levinson, recently told Law360 that the agency’s Whistleblower Program is yielding a “steady fire hose” of fraud tips and having a remarkable effect on the culture of the financial services industry in New England.

The Boston area’s success is just the latest evidence of the Whistleblower Program’s tremendous and growing power. The most recent annual report from the Office of the Whistleblower revealed record numbers in both the number and dollar value of awards granted to individuals.

Whistleblowers are bravely coming forward – and are doing so in droves.

In just over four years, the program has gained traction against deep and systemic corruption.  While the decision to come forward is never taken lightly, we are heartened to see that so many truth- tellers feel empowered to do so. To learn more about the specific protections and benefits offered by the SEC Whistleblower Program, please see here.

New Justice Department Policy Targets Wall Street Fraudsters

Jordan Thomas - Monday, September 21, 2015
Following criticism and public concern over the lack of prosecutions against individuals involved in the financial crisis, the Department of Justice recently released guidance that underscores a renewed effort to charge individuals in corporate wrongdoing. The memo, which sets forth best practices for federal prosecutors, makes clear that a company should be considered cooperative in an investigation only if it offers information about the individual employees involved in wrongdoing.

The policy memo arrives amidst recent public dispute among SEC directors regarding investigating and prosecuting individuals involved in financial fraud. Given the slew of multibillion dollar settlements involving nearly all of Wall Street’s major firms in the last few years, concern has grown that financial penalties are viewed as a tax write-off, not a powerful deterrent to misconduct. As SEC Chairman White stated in a speech last year, “A company, after all, can only act through its employees and if an enforcement program is to have a strong deterrent effect, it is critical that responsible individuals be charged, as high up as the evidence takes us.”

The reality is, finding and building cases against individuals is incredibly difficult. These cases are hampered by corporations utilizing massive financial resources to defend executives, the difficulties of gathering evidence from multiple, sometimes foreign, jurisdictions, and corporate structures themselves which are often designed to protect senior officials. Indeed, just last year, while French banking giant BNP Paribas was fined nearly $9 billion for processing financial transactions through countries subject to U.S. sanctions, the Justice Department maintained that the bank withheld records that might have implicated individual employees until after the deadline to file individual charges had passed. The odds are seemingly stacked in favor of corporations.

Whistleblowers fundamentally alter these odds.

As federal law enforcement renews its efforts to bring down the bad actors behind these devastating frauds, we must keep in mind that whistleblowers may be the sharpest tool in the enforcement arsenal. By exposing high-level insiders with detailed accounts of wrongdoing, whistleblowers can provide authorities with early and actionable intelligence. Dodd-Frank has deputized us all to act as the government’s eyes and ears. Empowered with an army of courageous witnesses, federal prosecutors and enforcement lawyers will build formidable cases that ferret out wrongdoing and promote a corporate marketplace where integrity is the price of admission.

Another Victory for Whistleblowers: Federal Appeals Court Rules that Internal Reporting Triggers Protections

Jordan Thomas - Friday, September 11, 2015
In another significant victory for the SEC and for whistleblowers, the U.S. Court of Appeals for the Second Circuit reversed a lower court and ruled that whistleblowers who report potential wrongdoing to their company prior to reporting to the SEC are entitled to the robust employment protections established under Dodd-Frank. As we discussed in an earlier post, the SEC issued guidance in August to clarify that Dodd-Frank anti-retaliation provisions apply equally to those whistleblowers who report potential violations internally. Given that at least one other court has ruled in an opposing way, the issue might be on its way to the Supreme Court for review.

In the meantime, this more expansive view of whistleblower protections not only empowers corporate whistleblowers, it also serves as an important reminder that companies must develop and encourage internal policies and procedures for the reporting of misconduct. For several years, we have examined the growing ethical crisis in corporate America and the crucial role truthtellers must play if we wish to reverse the prevalence of win-at-any-cost corporate cultures. With enhanced protections for whistleblowers, companies must shift their focus from silencing and retaliating against whistleblowers to establishing compliance programs that more effectively detect, deter and mitigate wrongdoing.

Deciding when, if and how to blow the whistle is an extraordinarily complex decision. Please see this short video for some of the key issues to consider. And, for more information on the specific employment protections offered by the SEC Whistleblower Program, please see here.

SEC Stakes Ground: Internal Reporting Triggers Whistleblower Protections

Jordan Thomas - Wednesday, August 19, 2015
In addition to the case we described in an earlier post, in which the Commission filed an amicus brief on behalf of an internal whistleblower, in a significant move to protect whistleblowers at large, this month the SEC issued interpretive guidance to clarify that Dodd-Frank anti-retaliation provisions apply equally to those whistleblowers who report potential violations internally.

The SEC’s expansive view on whistleblower protections essentially confirms that to qualify for Dodd-Frank anti-retaliation protections, a whistleblower may report potential violations to the SEC directly or internally through an employer’s compliance channels. According to the SEC, the clarification “avoids a two-tiered structure of employment retaliation protection that might discourage some individuals from first reporting internally in appropriate circumstances and, thus, jeopardize the investor-protection and law-enforcement benefits that can result from internal reporting.”

While many organizations work hard to build credible ethical cultures, over the last few years, we have witnessed increasing efforts by some organizations to dismantle and deter the landmark reforms of Dodd-Frank. Indeed, through the use of secrecy agreements, legal bullying, and the creation of omerta cultures, some companies aggressively discourage whistleblowers from reporting misconduct.

This must stop.

Last year, we, along with the Government Accountability Project and 250 other organizations, submitted a petition urging the SEC to, among other things, engage in rule-making to clarify and strengthen whistleblower protections. By issuing this guidance on internal reporting, the SEC has sent a clear message that it will do just that. We applaud this action by the SEC and its clear aim to protect and encourage whistleblowers.

SEC Sides With Corporate Whistleblower on Key Issue of Protection

Jordan Thomas - Friday, August 14, 2015
In an important case for whistleblower advocacy, last week, the SEC filed an amicus brief in California federal court contending that employees need not report misconduct directly to the government to qualify for whistleblower protection under Dodd-Frank. The underlying case involves a lawsuit filed by the former general counsel of Bio-Rad Technologies Inc. who claimed that he was terminated after voicing concerns about potential violations of the Foreign Corrupt Practices Act (FCPA). The company ultimately paid $55 million to settle the SEC’s charges.

While courts have generally sided with the SEC holding that a whistleblower need not report misconduct directly to a government agency to qualify for the anti-retaliation protections afforded by Dodd-Frank and Sarbanes-Oxley, in 2013, a federal appeals court ruled the other way. In all likelihood, the question of what triggers whistleblower protections will be an issue of ongoing debate in the courts that may go to the highest court in the land.

In many ways, this case and those like it are almost academic battles that will ultimately establish key legal precedent. So what’s a whistleblower to do? The key takeaway from the Bio-Rad matter is that individuals who wish to report misconduct would be wise to consider an early or simultaneous report to the SEC to assure eligibility for the protections guaranteed by statute to all whistleblowers.  Even a cursory filing of original information may be sufficient. In the long run, corporate compliance programs are a critical first line of defense against corporate wrongdoing. But for those defenses to work, whistleblowers must be encouraged and protected when they use them.

Historic Survey Sounds the Alarm: We’re Losing the Ethical Battle, Wall Street

Jordan Thomas - Tuesday, May 19, 2015
Together with the University of Notre Dame, today we released the findings of a collaborative and historic survey of financial services professionals across the U.S. and UK. The Street, The Bull and The Crisis is the most expansive analysis of its kind, probing the ethical views of a broad spectrum of the industry, from young professionals to senior executives, investment bankers, and investment managers, from San Francisco to Scotland.

Despite sweeping reform efforts and headline-making consequences of corporate misconduct, the findings make clear that attitudes toward corruption within the industry have not changed for the better. Indeed, nearly half those polled find it likely that their competitors have engaged in misconduct in order to gain an edge in the market. On an individual level, 32 percent of professionals with less than a decade in the business would engage in insider trading if they could get away with it. That’s twice the figure (14 percent) for employees with more than two decades in the industry. What does this mean for the future of the industry and how will it impact the fragile confidence of investors?

We are most concerned by findings relating to the widespread use of secrecy policies and agreements—a full 25 percent of individuals earning $500,000+ per annum have been asking to sign a confidentiality agreement that would prohibit reporting illegal or unethical activities to the authorities. As federal agencies and Congress has made clear, corporate entities cannot obstruct an individual’s fundamental right to freely engage with his or her government.

For more information on our findings, please see the full report here or see select highlights in this infographic.

An Untenable Silence: Confidentiality Agreements Examined & Exposed

Jordan Thomas - Thursday, April 02, 2015

Yesterday, the SEC announced a landmark enforcement action against engineering giant KBR for its use of confidentiality agreements that required individuals to obtain prior approval from the company’s legal department before discussing matters with outside parties…or face discipline and possible termination. This action sends a powerful message to companies that have sought to silence whistleblowers. Indeed, the proliferation of gag orders is a scourge on corporate culture, a threat to financial reform, if not democracy itself.

We have been at the forefront of advocacy efforts to protect truth tellers and, by extension, encourage open and transparent cultures at organizations across the United States and abroad. Last summer, I addressed the dangers of these gag orders in an article I drafted  together with the Government Accountability project for the New York Times Dealbook. The op-ed followed on the heels of our work to assemble a coalition of organizations, which represented millions of citizens, petitioning the SEC to address the issue of silencing and retaliating against employees who speak out against wrongdoing. 

In addition to these grassroots efforts, we have also addressed the more substantive issues at play in such employment agreements. In a recent article in the ABA Journal of Labor & Employment Law, the authoritative publication for workplace issues, together with Professor Richard Moberly and fellow attorney Jason Zuckerman, I examine the legality and enforceability of employment agreements that effectively undermine the crucial investor protection efforts established by the Dodd-Frank Act.

We remain steadfast in our belief that in this country, individuals have an unwaivable right to report wrongdoing to the government. And we will continue our work to protect this right and those courageous individuals who stand up to corruption.

SEC Issues Whistleblower Award to Former Company Officer

Jordan Thomas - Tuesday, March 03, 2015
In a landmark action that demonstrated the strength and reach of the SEC whistleblower program, the agency announced a sizable bounty to a former company officer, a Labaton Sucharow client, who provided law enforcement with key information about a securities fraud that resulted in a successful enforcement action. What makes this matter so unique is the fact that corporate officers are typically ineligible for awards. Typically. Among other exceptions, if a company had knowledge of a possible securities violation and compliance or other responsible parties failed to act within 120 days of learning of the misconduct, a company officer may come forward. This marks the first time the SEC issued an award in such a matter. Most importantly, this matter shows the remarkable power of the program to embolden high-level insiders to come forward and take a stand against corporate wrongdoing.

Location, Location, Location: The Geography of an SEC Whistleblower

Jordan Thomas - Tuesday, November 18, 2014
In the SEC’s report to Congress, just released today, the agency documented the tremendous success of its revolutionary investor protection initiative. As we peel back the layers of the report, we note some startling findings with respect to the origin of whistleblower submissions. First and foremost, the program’s international reach is inarguable. This year’s largest award — more than $30 million! — came from a foreign tipster. And, of all 14 awards issued by the SEC to date, four were awarded to whistleblowers outside the U.S. This year, the agency received tips from 60 different international jurisdictions, with the UK, India, Canada, China, and Australia chief among these. Within the U.S., submissions came from every state in the union. The busiest states for whistleblowers in FY2014? California, Florida, Texas, and New York. How this stacks up to 2013 submissions is particularly interesting: submissions from California jumped by 48%; Florida by 41%; Texas by 54%; and New York, which fell from 2nd to 4th place, actually recorded a 5% drop in submissions. To view the SEC report in its entirety, please see here.

Historic Year for Whistleblowers, Report Confirms

Jordan Thomas - Tuesday, November 18, 2014
The SEC Office of the Whistleblower has just released its report to Congress chronicling the program’s success over the last year. The data is extremely encouraging, serving as an apt reminder that a quiet revolution in law enforcement is underway, powered by whistleblowers who dare to speak out against misconduct. Highlights from this year’s report include 3,620 whistleblower tips - an increase of more than 20% in the number of tips in just two years. The SEC made 9 whistleblower awards in FY2014, the largest of which exceeded $30 million. The balance of the Investor Protection Fund at the close of the fiscal year was an astonishing $437 million! Tips came in from every state in the union and 60 countries, including a significant number of submissions from the UK, India, Canada and China. The report also highlighted the Agency’s new muscle, flexed in its case against Paradigm Capital (where I represented the whistleblower), in which the SEC used its new authority to bring anti-retaliation cases against entities seeking to undermine whistleblowers.

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Website Editor &
SEC Whistleblower Advocate

Jordan A. Thomas jthomas@labaton.com


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