Yesterday, just one year after the final rules of the SEC Whistleblower Program became effective, the agency has issued its first whistleblower award. This is a pivotal moment for prospective whistleblowers, investors and the public at large. There are several remarkable points to note about this first award. First, the timing of this award underscores that whistleblowers do indeed expedite and empower the enforcement process. In my August 14 post (“The Mechanics of a Whistleblower Submission: Recent Guidance from the SEC”), I cite the SEC Annual Report from FY 2011, which states that only 61% of SEC enforcement actions were filed within two years of opening an MUI, or matter under inquiry. Second, the SEC awarded the maximum percentage – 30% of sanctions collected – to the whistleblower highlights not only the SEC’s real commitment to the program, but also the whistleblower’s commitment to meaningfully participate in the investigative process. Finally, the issuance of an award so quickly emphasizes that the program is off to a banner – and credible -- start. By way of example, though the new IRS whistleblower program was enacted by Congress in 2006, only three awards have reportedly been paid to whistleblowers--and only in the last year. This isn't a surprise, the strong employment protections offered by the SEC Whistleblower Program – and the fact that whistleblowers can report wrongdoing anonymously by working with a whistleblower attorney – establish a revolutionary and strong platform for individuals to do the right thing.

This award crystallizes an important truth: The partnership between individual citizens and their government can be powerful. Having played a leadership role in the development of the Whistleblower Program during my tenure at the SEC, this is an event I have been looking forward to.  I expect that this historic event will embolden more whistleblowers to break their silence and work with law enforcement authorities to put an end to the serial misconduct that has so eroded investors faith in our markets.

The Ethics Resource Center (ERC), a definitive organization in the ethics and compliance arena, has just released the results of a first-of-its-kind survey of workplace ethics within the nation’s most powerful companies.  Conducted in June of this year, the survey marks the first comprehensive pulse-taking of Fortune 500 employees’ views on workplace ethics. The results are startling and, in some instances, sound an alarm for regulators, investors, corporate leaders and corporate ethics professionals alike.  

On the positive side, 60% of Fortune 500 companies operated comprehensive ethics & compliance programs as compared to 41% at all US companies.  But there appears to be a wide open space where bad things can happen.  More than half of all respondents had observed misconduct in the previous 12 months and, hearteningly, nearly three-quarters reported what they witnessed.  Employees reported feeling pressure and pressure erodes ethical values.   Specifically, the ERC survey found that 16% of employees felt that others pressured them to compromise standards in their jobs and 27% of employees who watched the stock price throughout the day felt pressure to break the rules.  Of those who felt pressured, a shocking 90% reported observing  misconduct on the job.  

The survey findings highlight the importance of good leadership.  Where management commitment to ethics was weakest, misconduct soared to 89%.  Consistent with other recent surveys, the survey found that employees show a strong desire to stay under the tent.  Indeed, a mere 1% of those who reported misconduct made their first report to an external authority.  This should give comfort to those in the corporate community that feared the SEC Whistleblower Program would cause employees to circumvent effective internal reporting systems and report misconduct directly to the SEC.  However, the bad news is that 17% of these employees went outside the company with a secondary report – largely because they were disappointed with the  organization’s response to the reported misconduct.  

Now, more than ever, companies – particularly the strongest corporate entities in the world – need to build ethical cultures that engender confidence in employees, investors and the public at large.  These findings suggest that the lion’s share of the Fortune 500 have strengthened their corporate integrity programs.  But more work remains to be done.  We encourage our readers to see the full survey here.

In a newly released video, Sean McKessy, Chief of the SEC’s Office of the Whistleblower, provided useful ‘tips on tips’ to help prospective whistleblowers understand the basics of a whistleblower submission to the SEC. Three important takeaways from the video are: (1) Whistleblower submissions should be as specific as possible. The more detailed information the Commission has to go on, the better it can evaluate and, if appropriate, act on the information; (2) If, after submitting a tip to the SEC, a whistleblower discovers or otherwise possesses additional information, always update the SEC. Information that may seem insignificant at first glance, may be credible and actionable intelligence for law enforcement; and (3) Understand the award process. Whistleblowers should be familiar with the factors that both increase and decrease an award following a successful enforcement action that meets the program criteria.

Another important and related consideration that I would like to highlight for prospective whistleblowers is that patience is key. SEC investigations take time – often from two to four years. In fact, according to the SEC’s Annual Report for FY 2011, only 61% of SEC enforcement actions were filed within two years of opening an MUI, or matter under inquiry. Insofar as many cases built on whistleblower tips are more significant and complex than traditional cases, their investigations can be particularly time intensive. For more information on the nuts and bolts of the Whistleblower Program, we encourage you to see our SEC Whistleblower Program Handbook. We also provide a wealth of information on the operations and activities of the SEC Enforcement Division in our SEC Insider’s Guide.