SEC Whistleblower Program - Updates for 2022
The SEC whistleblower program allows individuals to anonymously report potential securities law violations in exchange for financial rewards. As the program marks its 10-year anniversary in 2022, the SEC continues enhancing policies to incentivize whistleblowing. Companies should understand recent changes that make it easier for personnel to covertly expose wrongdoing and reap big payouts.
This post will provide an overview of the whistleblower program, summarize key updates in 2022, and outline compliance steps companies should take. Protecting against damaging whistleblower tips requires understanding the SEC’s whistleblower evolution.
Whistleblower Program Overview
Congress established the SEC whistleblower program in 2010 under the Dodd-Frank Act as an avenue for individuals to anonymously report federal securities law infractions. By providing financial incentives and employment protections, the program aims to uncover corporate fraud and misconduct. Key provisions include:
- - Anonymous Reporting: Whistleblowers can file tip submissions anonymously through attorneys and avoid employer retaliation.
- - Anti-Retaliation Protection: Employers are prohibited from firing, demoting or otherwise retaliating against whistleblowers.
- - Financial Awards: Whistleblowers whose original information leads to SEC enforcement actions over $1 million may receive 10-30% of the money collected.
- - Tax Incentives: Awards are not taxable and may be excluded from income.
The program has proven highly popular, garnering over 37,000 tips and awarding approximately $1.2 billion to 106 whistleblowers through fiscal year 2021. The SEC granted its largest awards on record in 2021, including $114 million to one whistleblower. With potentially life-changing payouts, 2022 brings more incentives for workers to blow the whistle.
Key Program Updates
In 2022, the SEC implemented several whistleblower program changes to entice more tips:
- - Increased Award Amounts: The SEC raised the maximum award percentage from 30% to as high as 50% for select cases, encouraging larger rewards.
- - Reduced Delays: New policies aim to reduce processing delays in making award determinations and payments to motivate prompt tips.
- - Broadened Eligibility: More compliance personnel, audit team members, and corporate directors are now eligible for awards.
- - Protection Against Retaliation: The SEC signaled plans to scrutinize and prosecute any retaliation against whistleblowers by their employers.
- - Increased Anonymity: Rule changes make it easier for whistleblowers to conceal their identity from employers throughout the entire tip and award process.
These measures enlarge incentives for individuals across a wider range of company and industry positions to covertly blow the whistle on suspected wrongdoing. The SEC is rolling out the red carpet for whistleblowers in 2022.
Risks for Companies
The whistleblower program creates significant risks for public companies, as employees tempted by big payouts may report every internal issue or hunch to the SEC. Concerns for compliance officers include:
- - Loss of Internal Reporting: Personnel may report externally to the SEC rather than internally to give themselves a shot at a whistleblower reward.
- - Difficulty Investigating Tips: If the reporting employee remains anonymous, companies will struggle to investigate vague external SEC tips.
- - Betrayal of Trust: Loyal employees turned whistleblowers can share confidential data, emails, or recordings that incriminate the company.
- - Unpredicted SEC Investigations: Vague external tips may lead to disruptive SEC investigations of issues before compliance staff can address them.
Given the six-figure payouts available, when employees suspect potential misconduct, the temptation will be there to go directly to the SEC rather than corporate compliance. More does not necessarily mean better for companies when it comes to whistleblowing.
Compliance Recommendations
To mitigate risks, companies should take these compliance measures:
- - Implement robust internal reporting procedures encouraging personnel to bring issues to management before external parties.
- - Train managers on proper handling of internal reports to avoid alienating employees who then turn to the SEC.
- - Develop strong insider trading and confidentiality safeguards, given whistleblowers often leak proprietary data.
- - Promptly investigate any specific internal or external allegations of misconduct to resolve issues before they balloon.
- - Make personnel aware of duty-of-loyalty expectations and trade secret protections to deter revealing information externally.
Robust compliance and training programs combined with incentives for personnel to report internally represent the best defenses against damaging SEC whistleblower tips.
Conclusion
The SEC whistleblower program will continue intensifying in 2022, supercharged by larger potential awards and reduced obstacles. This necessitates heightened vigilance by companies to get ahead of potential misconduct, implement controls discouraging illicit acts, and incentivize internal reporting channels. With whistleblowing all the more tempting for personnel, protecting corporate interests requires getting compliance right.