The Dodd-Frank Act (DFA) created the SEC Whistleblower Program which has grown into one of the best whistleblower programs in the country and one of the most effective checks on corporate fraud. The Securities and Exchange Commission’s Office of the Whistleblower’s 2017 annual report confirmed that “whistleblowers have provided tremendous value to its enforcement efforts and significantly helped investors.” It also confirmed that SEC whistleblower disclosures have “directly” contributed to “hundreds of millions of dollars returned to investors.” In 2017, the Securities and Exchange Commission (SEC) has paid $50 million in whistleblower rewards to twelve individuals. Since the whistleblower program began in 2012, the SEC has paid $160 in whistleblower rewards.
On February 21, 2018, however, the U.S. Supreme Court ruled that employees who report violations of securities law to their supervisors or corporate compliance programs, rather internally, but not to the Securities and Exchange Commission (SEC), are not protected from retaliation under the Dodd-Frank Act’s protection as SEC whistleblowers.
Stephen M. Kohn, Executive Director of the National Whistleblower Center (NWC) and an attorney who has represented “internal” whistleblowers since 1984, described today’s Supreme Court decision in Digital Realty Trust v. Somers (No. 16-1276) as “devastating.”
“The overwhelming majority of whistleblower report violations directly to their managers and internal corporate compliance programs. Stripping internal whistleblowers of protection under the Dodd-Frank Act could negatively impact over 90% of corporate fraud retaliation cases,” Kohn said.
In June of 2018, the SEC announced proposed amendments that will undermine its successful whistleblower program.
The SEC proposed these changes with no input from the whistleblower community, yet adopted a position consistent with the long-standing and flimsy viewpoint advanced by the anti-whistleblower U. S. Chamber of Commerce (“Chamber”).
The National Whistleblower Center (NWC) filed a Freedom of Information Act (FOIA) request seeking documents related to lobbying efforts by Wall Street firms and the Chamber of Commerce that gave rise to the SEC’s proposed rules. The SEC determined that the NWC had a “compelling need” to receive these documents “on an expedited basis” and determined that there were 15,877 emails that could be responsive to NWC’s request. These included 1,078 emails that referenced both “whistleblower” and “Chamber of Commerce” created between January 2, 2017 and June 29, 2018.
“At the end of the day, an effective anti-corruption program can work only if telling the truth and reporting frauds is more profitable then committing the crimes. The proposed rule ignores this reality. It disincentives the most important potential whistleblowers in the securities industry and takes away the Commission’s best advertisement for promoting honesty in the markets,” explained NWC executive director Stephen M. Kohn in an Op-ed published by Law360.
We need to stand together and ask Congress to protect this critical whistleblower program.