On November 5, 2014, the Berkeley Center for Law, Business and the Economy (BCLBE) welcomed Sean McKessy, Chief of the SEC’s Office of the Whistleblower, to Boalt Hall for a talk on the whistleblower program and its three main aspects: confidentiality, anti-retaliation protection and payouts.
When the whistleblower program first began there was some concern that the payout system would weaken employers’ compliance programs, since employees would presumably be incentivized to report misconduct to the SEC for the award, rather than report it internally. But in McKessy’s opinion, the system has actually encouraged employers to strengthen compliance programs and increase funding, enabling them to run internal whistleblower programs and reward employees for their help in preventing unlawful conduct.
Confidentiality
The program is required to maintain the confidentiality of whistleblowers, unless disclosure is required in connection with a public proceeding instituted by the SEC. Accordingly, the Office’s first challenge was to devise a way to protect this information from other regulators and the DOJ.
According to McKessy, after denying numerous requests for information the Office was eventually able to convince other regulators that they were taking confidentiality very seriously. This was crucial to the program because, as it turns out, whistleblowers seem to value confidentiality even more than the payout itself.
Anti-retaliation
The whistleblower statute offers a very broad prohibition on retaliation, as no person can take any action to prevent the reporting of a violation. Recent discussions have centered on company policies requiring employees to sign certain agreements that prevent them from blowing the whistle. This is such a powerful trend that many congressmen and attorneys have suggested that further elaboration is needed in the statutory language. However, in McKessy’s opinion, any refinement to this very broad rule would simply restrict its coverage.
Though the whistleblower program was established in 2011, it wasn’t until this past summer that the SEC brought its first enforcement action sanctioning an employer for retaliating against a whistleblower. According to McKessy, this is now a priority and the public should expect to see a strong position by the SEC on this matter in the near future.
Payout
If someone voluntarily reports original information to the Office that leads to a sanction, the whistleblower (or group of whistleblowers) is entitled to receive between 10% and 30% of the sanction amount. The Office has awarded 14 people a combined total of over $50 million since the beginning of the program and has received information from all 50 states.
Whenever a final judgment or order results in a monetary sanction over $1 million, a notice is posted online so anyone who believes they are eligible can apply for a whistleblower award. However, due to the public nature of this system, there is some room for abuse. McKessy noted that in one instance, the same person had applied for a whistleblower award each and every time a new notice was posted online, without being able to prove causality. This ultimately resulted in a ban of that person from the program for using it in bad faith.
In order to quantify the importance of the information received by the whistleblower for the purposes of calculating his or her award, McKessy warned that any delays in presenting the information to the Office are taken into account. For example, the Office recently awarded a whistleblower about $30 million, then made a small discount in the amount due to some delay in reporting. However, McKessy said the public should expect bigger discounts in future cases in which an unreasonable delay is identified.
Other Thoughts
A final challenge discussed was the foreign reach of the program. Though the payout system extends to foreigners, the anti-retaliation protection currently does not. According to McKessy, he worries about the conflicting message the U.S. is sending by enforcing the Foreign Corrupt Practices Act without extending this anti-retaliation protection to foreign whistleblowers.
Recap: A Conversation with Sean McKessy, Chief of the SEC Whistleblower Office (PDF)