Despite increasing efforts to establish ethical practices in the workplace, too often misconduct goes undetected and unreported to business leaders or law enforcement. Corporate leaders are on notice; as risk rises to the top, so too does responsibility. This webinar, the final presentation in our six-part series presented with Thomson Reuters, examines the rights and responsibilities of corporate insiders in light of the SEC Whistleblower Program established under Dodd-Frank. My co-presenter for the program, Lawrence Hamermesh, is the Ruby R. Vale Professor of Corporate and Business Law at Widener's Delaware campus and Director of the Widener Institute of Delaware Corporate and Business Law. Together, we examine the fiduciary duties of officers and directors and whether whistleblowing is consistent with fulfilling these duties. For additional information on the whistleblower program or ways to establish stronger ethical cultures, please see our corporate ethics clearinghouse here.
As we addressed in a post here in June, at one time, attorneys’ duty to maintain clients’ confidences, even in the face of anticipated or ongoing corporate wrongdoing, was thought to be virtually absolute. That is no longer so. In the wake of Dodd-Frank, attorneys may not only have the right, but a responsibility, to report a client’s misconduct. In this webinar, the fifth in our six-part series presented with Thomson Reuters, Boston University School of Law Professor Nancy Moore and I explore the SEC Whistleblower Program’s significant implications for lawyers and outline some key considerations for prospective attorney whistleblowers. Particularly important, we examine specific considerations for in-house counsel, duties of confidentiality and federal preemption as it relates to Dodd-Frank vis-à-vis state rules governing attorney conduct. In addition to this informative webinar, please see a recent Corporate Counsel Magazine article article I co-authored with national recognized ethics expert, Professor Bruce Green or feel free to check out our entire digital library in our resource center.
As federal agencies heighten regulatory scrutiny, and programs like the SEC Whistleblower Program invite everyday citizens to play a role in the enforcement process, it is critical to understand how the SEC and its enforcement process work. In An Insider Guide to the SEC Enforcement Process, the fourth in our six-part webinar series presented with Thomson Reuters, I call upon knowledge gained through my years as a senior attorney at the SEC to outline the Commission’s enforcement policies, procedures and practices. You can access this program and our entire digital library in our resource center.
Thomson Reuters’ Legal Education Arm and Labaton Sucharow Join Forces: Six-Part Webinar Series Launched
After the passage of the Sarbanes-Oxley Act of 2002, many organizations have established procedures, including anonymous hotlines, for the internal reporting of misconduct. Despite these enhanced reporting requirements, there has been a long series of corporate scandals that were not detected or reported to law enforcement authorities. Studies have consistently shown that employees are the most likely group to detect fraud, yet too many are reluctant to report corporate wrongdoing because they doubt that their organizations will act appropriately on internal reports of misconduct and protect them from retaliation.
In response to this serious problem, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required the Securities and Exchange Commission to establish a whistleblower program that offers anonymous reporting, employment protections, and monetary awards to individuals who report possible violations of the federal securities laws. Officers, directors, and other corporate employees are eligible to participate in this important investor protection program.
It is well known that corporate officers owe certain fiduciary duties, including a duty of loyalty, to the corporation and its shareholders. What do those duties require when the officer discovers that others within the organization are engaging in possible violations of the federal securities laws? In a recent Risk Management Magazine article, Professor Lawrence A. Hamermesh, a nationally recognized professor of law and the Director of the Widener Institute of Delaware Corporate and Business Law, and I provide practical guidance for corporate officers about their rights and duties when they become aware that their organization may be engaging in unlawful conduct in light of the new SEC Whistleblower Program.
But do people know about the program? The answer is not enough.
In December 2011, as part of our Ethics & Action survey, we found that only 32% of Americans were aware of the SEC Whistleblower Program. In our recent survey of the financial services industry, Wall Street, Fleet Street and Main Street: Corporate Integrity at a Crossroads, only 44% of respondents were aware of this critical investor protection initiative.
To increase public awareness of the SEC Whistleblower Program, we have launched an SEC Whistleblower Eligibility Calculator. This first-of-its-kind web-based tool helps potential whistleblowers understand the in’s and out’s of the program. The easy-to-use calculator presents users with various questions, which then lead to a customized and detailed eligibility report. The assessment also provides numerous links to the rules, regulations and other helpful resources.
Electing to blow the whistle is an incredibly difficult personal and professional decision. By providing a confidential mechanism for prospective SEC whistleblowers to learn more about the program on their own time and in their own space, we hope to empower individuals to make informed decisions.
Under Dodd-Frank, the SEC is required to pay monetary awards, between 10 and 30 percent of the total monetary sanctions collected by the SEC and in other related enforcement actions, to individuals who voluntarily provide the SEC with original information leading to an enforcement action in which the agency obtains at least $1 million in sanctions. The statute also provides robust employment protections that prohibit retaliation against an employee who provides information about possible securities violations to the SEC in accordance with the program’s implementing rules. In the event retaliatory action is taken, it establishes significant remedies including reinstatement with equivalent seniority, two-times back pay with interest, attorney fees, and other related expenses. Significantly, whistleblowers may report possible violations anonymously if represented by counsel. Attorneys are eligible to participate in this important investor protection program.
In a recent Corporate Counsel Magazine article, Professor Bruce Green, a nationally recognized ethics professor and the Director of the Louis Stein Center for Law and Ethics at Fordham Law School, and I explore the interplay between the SEC Whistleblower Program and attorney conduct rules, both state and federal.
For one thing, payback. We like to believe that what comes around goes around. Whether or not we fully understand the nuances of collateralized debt obligations or the connection between the tanking of the housing market and mortgage-backed securities, many Americans believe that big banks have done some bad things without too much of a hit to the executive bonus pool. Greg Smith, pedigree and position notwithstanding, is a little guy. And he’s a little guy who spanked Goliath. If there was any doubt about the power of Smith’s message, consider Goldman’s $2.15 billion stock dive following his very public message about the bank’s loss of “moral fiber.”
Perhaps more important, change is in the air. While important regulatory developments like Dodd-Frank and similar government initiatives launched overseas foretell a new kind of commercial engagement, The Goldman Resignation made it personal. People, everyday people, are speaking out against greed and standing up for corporate integrity. This matters. While Smith clearly stated that he had no knowledge of illegal conduct at Goldman, it is precisely the profits-over-people environment that allows misconduct to take root and thrive. When client interests are “sidelined,” when clients are transformed from humans to "muppets," it’s a slippery slope – and only a matter of time – before big, unethical or illegal conduct rears its ugly head.
In a 2007 survey, the Compliance and Ethics Leadership Council determined that, of 45 variables tested, the fear of speaking up is the strongest indicator of misconduct. The study found that “companies in which employees are uncomfortable speaking up or fear retaliation have significantly elevated levels of misconduct.” Hopefully, Greg Smith’s resignation can embolden more employees to take a stand. And, in those instances where an employee has knowledge of actual violations of the law, initiatives like the new SEC Whistleblower Program provide individuals with real protections from retaliation and significant financial incentives to tell the truth.
Let’s hope Greg Smith is a harbinger for a new era on Wall Street, an environment characterized by transparency and decency, where doing the right thing is the only thing. Good things happen when individuals commit to integrity. Clients prosper. Shareholders prosper. The public thrives.
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Jordan A. Thomas
SEC Whistleblower Advocate
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