Labaton Sucharow Whistleblower Tips SEC in Groundbreaking Enforcement Action

Jordan Thomas -

Today, the SEC announced that two J.P. Morgan wealth management subsidiaries agreed to pay $267 million to settle charges in an enforcement action initiated by information brought to the SEC by a Labaton Sucharow client, a J.P. Morgan executive. The enforcement is one of the largest and highest profile actions initiated by an SEC whistleblower since the establishment of the program.

The SEC’s investigation uncovered that J.P. Morgan’s investment advisory business and its nationally chartered bank were steering clients to more expensive in-house investments without proper disclosures of conflicts of interests. The troubling actions in this case occurred over several years, and deprived JPMorgan's clients of necessary information to make informed investment decisions.

This case powerfully demonstrates the vast potential of the SEC Whistleblower Program to find and eradicate wrongdoing early and often. Because of the unique protections and incentives of the program, our client chose to report the securities violations at J.P. Morgan to the SEC. In doing so, the individual was able to protect J.P. Morgan clients and improve the sales culture of the organization, while avoiding retaliation and blacklisting.

And as awareness of the SEC Whistleblower Program grows, so does the likelihood that more individuals will step forward to reveal violations. The program’s broad international reach and ability to report anonymously provide enormous opportunities to uncover misconduct wherever it occurs. In designing this innovative program, the SEC understood that employees represent a critical first line of defense against wrongdoing. To learn more about the SEC Whistleblower Program, please see here.

Strong E&C Programs: New Report Examines Key Characteristics

Jordan Thomas -

Working at the forefront of whistleblower advocacy, we have previously discussed the numerous ways companies hinder or actively retaliate against individuals who choose to bring corporate misconduct to light. In fact, according to the Ethics and Compliance Initiative’s National Business Ethics Survey, more than 1 in 5 respondents said they experienced retaliation after reporting internally. We also continue to witness companies developing new and sophisticated strategies to discourage employees from reporting possible violations.

To be sure, though, the majority of companies want to behave ethically, and are potentially stymied by antiquated internal policies or a lack of guidance regarding appropriate and effective compliance measures.

As part of its continued dedication to improving the current state of corporate ethics, last week the ECI released a new report which examines key characteristics of high-quality compliance and ethics programs. According to the report, common practices of organizations with strong ethics and compliance cultures include:

  • Creating an environment in which employees are encouraged and able to speak up. Management in such organizations not only offers ample opportunity for employees to voice concerns, but also takes retaliation seriously through actively engaged HR, legal and compliance departments.
  • Acting quickly and maintaining accountability when misconduct occurs. These organizations develop a plan of action in which suspicions are thoroughly investigated, and confirmed misconduct leads to consistent consequences, regardless of the employee’s position.

  • Treating compliance programs as central to business strategy. Misconduct poses dire business risks. As a result, an organization that is serious about ethics will ensure that the compliance department is not only responsible for meeting legal requirements, but also works to help management understand and establish integrity to benefit the organization’s overall mission.

It is apparent that companies must demonstrate greater leadership in building ethical cultures, and we applaud the focus and continued work by the ECI to help advance this goal. In our ongoing effort to root out misconduct in the workplace, the ECI’s report provides a solid foundation of principles and practices on which we can continue to build.


Recent Whistleblower Award: Timing Matters

Jordan Thomas -

The SEC just announced another whistleblower award, granting more than $325,000 to a former investment firm employee whose tips led to a successful enforcement action. This award, like the $30 million award granted to a whistleblower last year, came with a caveat: the whistleblower could have received a larger award, if not for a delay in reporting. While the whistleblower waited to report the misconduct until after leaving the firm, whistleblowers are provided significant employment protections to encourage the timely reporting of misconduct. Speaking to this, Enforcement Division chief Andrew Ceresney noted that the program encourages tipsters to come forward in order to "prevent misconduct from continuing unabated while investors suffer more harm.”

While deciding to blow the whistle is a complex decision, timing matters. Sometimes, a cursory submission, followed by a more lengthy and detailed submission, may be in a whistleblower’s best interest. And, whistleblowers who fear retaliation may wish to consult an attorney to explore the anonymity protections afforded by Dodd-Frank’s program when individuals work with a whistleblower advocate.

A Bold Step Forward: New UK Rules Empower Whistleblowers

Jordan Thomas -
Just last month, the UK’s Financial Conduct Authority (FCA), together with the Bank of England’s Prudential Regulatory Authority, published strident new rules to encourage and support whistleblowers at financial institutions. By September 2016, banks and credit unions with more than £250 million in assets must standardize internal whistleblowing programs. They must also assign a senior manager to act as a whistleblower “champion.” Other requirements include an annual report on whistleblowing and notifying employees of whistleblowing services. Though currently applicable to UK institutions, these requirements could eventually apply to all regulated financial institutions in the country, including overseas banks with branches in the UK.

This landmark move addresses ongoing concerns about systemic ethical issues within the industry. Earlier this year, in an expansive survey we conducted together with the University of Notre Dame, The Street, The Bull and the Crisis, we uncovered some troubling findings on the topic of ethics in the US and UK financial services industry:


  • When asked if they ever felt pressure at work to compromise ethical standards or violate the law—approximately 14% of the survey’s UK respondents admitted feeling such pressure. This was a full 6% higher than respondents in the US.
  • 24% of UK respondents said it was likely that their employer would retaliate if they were to report wrongdoing in the workplace.
  • And perhaps most troubling, more than 1 in 5 respondents said they believed their company’s confidentiality policies and procedures barred the reporting of potential illegal or unethical activities directly to law enforcement or regulatory authorities.

While there is clearly much work to be done on both Wall Street and Fleet Street, we are making real progress. Indeed, in 2012, I was privileged to give an address at the House of Commons about the ethical crisis that led to the development of the SEC Whistleblower Program and the program’s powerful and ground-breaking effect on law enforcement. I continue to have great faith in our combined abilities to bring forth and empower truthtellers wherever they reside. I note that in fiscal 2014, the SEC reported that it received 70 tips from whistleblowers in the UKthe highest number from any country outside of the US.

These latest rules promulgated by the FCA are a promising sign. Like the SEC’s Whistleblower Program, these rules recognize the crucial role of each individual employee in the fight against wrongdoing and offer the best hope for industry-wide reform.

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

Jordan Thomas -
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 -
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.

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

Jordan Thomas -
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.

Top Lawmakers Urge SEC to Protect Whistleblowers

Jordan Thomas -
This week, eight leading Democrats on the House Oversight and Government Reform and House Financial Services Committees sent a letter to SEC Chair Mary Jo White calling on the Commission to ensure corporations do not enact measures meant to stymie whistleblowers. The letter pointed to a recent Washington Post article, which outlined numerous ways companies have restricted employees from reporting misconduct.

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.

The Best Way to Honor Whistleblowers on National Whistleblower Appreciation Day? Do More to Protect Them

Jordan Thomas -
In recognition of National Whistleblower Appreciation Day, coming up on July 30, we were asked to contribute a guest post on the Government Accountability Project’s website, which can be found here. GAP is the nation’s leading non-profit, non-partisan whistleblower protection and advocacy organization, which helps expose wrongdoing to the public and actively promotes government and corporate accountability. Since its founding in 1977, GAP has represented over 5,000 whistleblowers in the court of law and in the court of public opinion, including hundreds of whistleblowers who have reported financial misconduct.

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.

Labaton Client Profiled in Financial Times

Jordan Thomas -
One of the first pieces of advice we give to any prospective client is that while being a whistleblower can be rewarding in many ways, it’s not always easy or glamorous. To the contrary, being a whistleblower can present significant personal and professional challenges, as an article published in this week’s Financial Times Weekend Magazine highlights. The article profiles three Wall Street whistleblowers, including our client Dr. Eric Ben-Artzi, who came forward in 2011 to expose possible misconduct by Deutsche Bank (Dr. Ben Artzi’s whistleblower complaint against Deutsche Bank, which alleged that the bank had improperly overvalued its credit derivative portfolio by over ten billion dollars, was the subject of an earlier Financial Times article and, according to news reports, is under SEC investigation).

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