Accountants play a crucial role in the area of investor protection. In the past, however, the profession struggled to balance competing allegiances. Prior to the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, accountants encountering misconduct struggled with professional standards relating to client confidentiality and their duty to the public. Now, accountants no longer need to choose between their integrity and their job. In Accountants as Whistleblowers, the third installment in our six-part webinar program presented with Thomson Reuters, Professor Eileen Taylor and I outline accountants' responsibilities, rights, and risks when they detect possible securities violations in light of the new SEC Whistleblower Program. Stay tuned for news and updates on other webinars and feel free to check out our entire digital library in our resource center.

The genius of the whistleblower provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act, specifically the SEC Whistleblower Program, is that it recognized that law enforcement authorities and financial regulators cannot effectively and efficiently police the financial marketplace without the assistance of private individuals and entities. But the truth is, the laws that govern the securities industry can be complex. A Securities Law Primer, the second in our six-part "Whistleblowing in the Corporate World" webinar series presented with Thomson Reuters, provides important information to help individuals and responsible organizations determine whether a violation of the federal securities laws has occurred, assess the significance of the violation, and better understand the factors that go into a successful enforcement action. Stay tuned for news and updates on other webinars and feel free to check out our entire digital library in our resource center.

In August, we launched the first in a six-part series, Whistleblowing in the Corporate World, presented with West LegalEd, part of Thomson Reuters. Our first webinar kicked off with "The Advent of the SEC Whistleblower Program" in which I provide an overview of the origins, mechanics, scope and implications of this important investor protection program. Stay tuned for news and updates on other webinars and feel free to check out our entire digital library in our resource center.

Is corporate corruption a top-of-mind issue for most Americans? It certainly is. Recent data from our 2^nd Annual Ethics & Action Survey underscores that a majority of Americans not only see a causal connection between corporate misconduct and the economic crisis, but the political response to corporate corruption is likely to be a significant factor in voting decisions this November.

Building on these survey results, and fleshing out the implications even further, on September 25^th, political scientist Jamie Chandler and I authored an Op-Ed in the International Business Times. We argue that an emerging anti-corruption majority can significantly influence elections at all levels of government. And, we point to historical successes of campaigns that put front and center a commitment to root out corporate misconduct. Please see the full column here.

This week, we announced the results of our 2^nd Annual Ethics & Action Survey: Voices Carry, which polled more than 1,000 Americans on corporate ethics and wrongdoing, the impact of corporate misconduct on the economy, government's role in its repair and the impact on their voting decisions in November. Notably, 61 percent of respondents report that a candidate's commitment to rooting out corporate wrongdoing will be a significant factor in their voting decision in November. This action builds on a growing frustration with inaction. The survey revealed that 77 percent of Americans believe politicians generally favor corporate interests over their constituents' interests and 81 percent do not believe the government has done enough to stop corporate wrongdoing. The data also revealed 54 percent of Americans have personally observed or have first-hand knowledge of wrongdoing in the workplace and 64 percent believe that corporate misconduct was a significant factor in bringing about the current economic crisis.

The survey also pointed to a continued lack of faith in employers. Nearly one in five respondents felt that their employers' ethical values took a back seat to bottom line profits. With respect to acting on reports of misconduct, 24 percent of Americans would fear retaliation if they reported wrongdoing in the workplace and 20 percent believe that a report of wrongdoing would not be appropriately handled by their employer.

The data also revealed signs of hope. In addition to acting at the polls, 63 percent of Americans believe the government should allocate more dollars to financial regulators and law enforcement to combat corporate wrongdoing. Particularly encouraging, 84 percent of Americans have a positive perception of individuals who report illegal or unethical conduct and 83 percent would 'blow the whistle' on corporate wrongdoing given protections and incentives such as those offered by the SEC Whistleblower Program.

It is extremely encouraging to see Americans’ willingness to take a stand for integrity – at the polls and in their communities. This is exactly the kind of grassroots action that will create lasting reform and compel a stronger commitment to ethics by the government and American employers. To see the full results of our survey, please click here.

On the heels of the SEC’s announcement of its first whistleblower award, the IRS announced last week that it would pay one of its first awards—a startling $104 million—to a former UBS banker, Bradley Birkenfeld, who aided the government in connection with its investigation into the bank’s practice of helping wealthy U.S. taxpayers hide billions of dollars in secret accounts. 

The IRS and SEC whistleblower programs are different—both in form and function. For one thing, individuals criminally convicted of related misconduct do not qualify for monetary awards under the SEC Whistleblower Program (though they may benefit from the program’s anonymity and employment protections). The programs also have different guidelines about protecting the identity of the whistleblower. (Under the SEC program, whistleblowers working with an attorney do not need to disclose their identity when submitting a claim.) In addition, while the SEC Whistleblower Program applies only if the monetary sanctions the agency collects exceed the minimum threshold of $1 million, the program can also extend to recoveries by other regulatory and law enforcement organizations that stem from the whistleblower’s information.  This means that eligible SEC whistleblowers can also receive monetary awards for sanctions collected in related parallel proceedings by other agencies, such as the Department of Justice. To provide a sense of scope, in fiscal year 2011, the SEC recovered more than $2.8 billion in monetary sanctions alone and many of its more significant cases had successful related enforcement actions with large monetary sanctions collected by other agencies. (To better understand SEC Whistleblower Program eligibility, check out Labaton Sucharow's Eligibility Calculator.)

Despite these differences, the two federal whistleblower programs share a common goal – a call for the public to step forward and speak out against wrongdoing. And the buzz around the recent whistleblower awards suggests that the public is hearing to the call.

For further analysis on the recent IRS award and the differences between the SEC and IRS whistleblower programs, please see an instructive story from Reuters here.

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.

The ABA Journal, a publication of the American Bar Association, has just announced its Legal Rebels for 2012. I was honored to be counted in the list of 11 Legal Rebels who come from a wide range of practices and firms across the nation. Now in its fourth year, this is the journal’s "annual nod to lawyers who are helping change the profession in ways both big and small. These are the innovators—the folks who’ve found a different path, some new way to blend the needs of their clients or their practice, or even their own needs of personal expression, into the way they practice the law." While a humbling personal moment, this accolade champions the important work Labaton Sucharow does to advocate for courageous whistleblowers and help responsible organizations establish stronger ethical cultures.

On September 5th, nestled between columns dissecting the presidential political drama as it unfolds, USA Today made space for another critical topic: How Wall Street Creates Criminals. In this column, Cornell Law professor Lynn Stout and I address how and why the financial services industry has lost its moral compass, and the necessary first step for recovery: accountability. Building on data gathered in Labaton Sucharow’s recent survey of the US & UK Financial Services industry, Wall Street, Fleet Street, Main Street: Corporate Integrity at a Crossroads, we argue that Wall Street has to admit that it has a corporate ethics problem and then take bold measures to change it.

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.