Whistleblower Tips on the Way Up

whistleblowerThe Securities and Exchange Commission’s whistleblower program has been making headlines since October, when the agency announced it was awarding a record $14 million to an anonymous employee whose tip to the agency led to an enforcement action that recovered significant investor funds.

In announcing the payout, SEC Chair Mary Jo White expressed her hope that “an award like this encourages more individuals with information to come forward.”

At the time, experts told HRE the reward would almost certainly do just that, and also suggested that more large payouts were in the offing.

If a recent report to Congress offers any clue, the number of whistleblowers bringing information to the SEC is already on the rise.

In its annual report, the agency said it received 3,238 tips in fiscal year 2013, an 8 percent increase over the 3,001 tips received in 2012. The most common complaint categories reported by whistleblowers in the 2013 fiscal year were corporate disclosures and financials (17.2 percent), offering fraud (17.1 percent) and manipulation (16.2 percent), according to the report.

Though modest, the 8 percent uptick “shows the program is progressing with a full nationwide reach, and internationally as well,” says Steven Pearlman, a Chicago-based partner in Proskauer Rose’s labor and employment law group, and co-chair of the firm’s whistleblowing and retaliation group.

“This is a result of concerted efforts on the part of the SEC Office of the Whistleblower to publicize the program,” says Pearlman. “They’ve done quite well in that regard, [and] it is likely that the volume of tips will increase in the near-term as a result of the recent $14 million award. The question is whether the tips will be of sufficient quality.”

The number of would-be whistleblowers who may feel compelled to sidestep internal reporting processes is another concern for companies, he says, noting the recipient of the $14 million award went directly to the SEC rather than bringing the complaint to his or her employer.

“Unfortunately, we still remain in the dark as to what percentage of the tipsters reported internally before heading to the SEC. Companies are still legitimately concerned that this [whistleblower] program creates an improper incentive for employees to circumvent their internal compliance programs,” says Pearlman.

“Though the SEC has taken steps aimed at increasing the likelihood that tipsters will report internally before going to the government, we need data to see whether, and to what extent, those incentives are effective.”

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