Page 6 - White-Collar Crime

S6 | MONDAY, SEPTEMBER 28, 2015 | White-Collar Crime
| NYLJ.COM

The Challenge of Misplaced
alleged unlawful conduct with the prospect

of recovering substantial sums of money for
Whistleblower Incentives
themselves. As SEC Chair Mary Jo White said
in a recent speech this past spring, in its short
lifespan, the whistleblower program has been
a “game changer.”3
But, along with providing inancial incen-
tives for whistleblowers to step forward and
report wrongdoing, the SEC also has aimed to
support companies’ own internal compliance

programs and provide them with the ability
to weed out corporate malfeasance internally
without, at least at the initial stages, involv-
ing the agency’s enforcement staff. That is
because, even before the implementation of
Dodd-Frank, many companies had in place
systems for reporting corporate fraud or
other concerns and internal processes for

investigating and addressing those reports.
When the SEC was drafting its new whistle-
blower rules, it expressly considered private
sector concerns that the new whistleblower
initiative would undermine these pre-existing
compliance programs and short-circuit mea-
sures already in place to handle reports of
alleged unlawful conduct without the staff’s
involvement.

Thus, according to White, the inal whistle-
blower rules that were ultimately adopted by
the SEC were meant to “incentivize employ-
ees to report internally irst.”4 Likewise, in its
annual report to Congress, the head of the
SEC’s whistleblower program noted that it
“was designed to complement, rather than
replace, existing corporate compliance pro-
grams” and that while it “provides incentives

for insiders and others with information about
unlawful conduct to come forward, it also
encourages them to work within their com-
pany’s own compliance structure, if appropri-
ate.”5 In short, one of the overall goals of the
SEC’s Dodd-Frank whistleblower program has
been to motivate “companies to build truly
effective compliance programs and to fos-

ter atmospheres where internal compliance
reporting is not only tolerated, but actively
encouraged.”6
Initial Implementation of the SEC’s Bal-
anced Approach. How has the SEC imple-
mented this approach? Among other things,
but most importantly, the SEC linked how
much a whistleblower cooperates with their
company’s compliance function with the size K
OC
of the award that they receive if a success- GST
ful enforcement action is brought. As White BI
explained, “[a] whistleblower’s participation
in internal compliance systems is thus a factor
that will generally increase an award, whereas And the U.S. Securities and Exchange Com- issued, and enforcement actions brought over
interference with those systems will surely BY JOHN T. ZACH
mission, which is charged with handling the past four years. Last year, the program
decrease an award.”7 Likewise, the rules AND RANDALL W. JACKSON
many of these dificult investigations, has authorized more whistleblower awards to
permit a whistleblower to recover an award demonstrated—both through its words and individuals than it had in all the prior years
even where they irst report the information I n the post-inancial crisis era, regulators actions—that it intends to continue to bolster of its existence combined.One of those
1
internally to their company, and not the SEC. have made the decision to encourage its young whistleblower program as a cen- awards—which was the largest ever autho-
This is so even where the company “later and rely upon whistleblowers as a core
terpiece of its enforcement strategy. Yet, as rized—was for more than $30 million. As a
provide[s] [the] information to the Com- enforcement tool in their current efforts to the program has grown, developments in the general matter, these awards are required
mission, or provide[s] results of an audit or investigate and prosecute corporate wrong- law, which have created a split between the to be paid out by the SEC to a successful
investigation initiated in whole or in part in doing. Given the dificulties of white-collar Second and Fifth Circuits, have raised chal- whistleblower in an amount equal to 10 to 30
response to information [the whistleblower] investigations and prosecutions, access to an lenges for companies seeking to internally percent of the monetary sanctions recovered
reported” to the company.8 Importantly, how- insider capable of walking a regulator through address allegations of wrongdoing through by the SEC, where the overall recovery is
ever, to be eligible under these circumstances, complex facts, dificult accounting issues or their own compliance and legal departments.
over $1,000,000.2
Striking a Balance Between SEC Involve-
the whistleblower must report the informa- voluminous documents is an obvious draw.
Recent high-dollar awards have been
tion to the SEC within 120 days of providing ment and Supporting Internal Compliance touted by the SEC and have received sub-
it to their company’s internal compliance or Programs. Born out of the Dodd-Frank Wall stantial coverage in the press. This public
legal department.9
JOHN T. ZACH and RANDALL W. JACKSON are partners Street Reform and Consumer Protection Act, exposure for the whistleblower program, in
This structure permits the company room in the global investigations and white-collar defense the SEC’s whistleblower program has been turn, is being used by the SEC to attract even
(around four months) to internally investigate
practice at Boies, Schiller & Flexner.
growing in terms of tips, monetary awards
more individuals to come forward to report