New SEC Whistleblower Office Helps Foster Uptick in Whistleblower Activity

The new Securities and Exchange Commission's Office of the Whistleblower opened on August 12, 2011. The new office is responsible for fielding tips received from whistleblowers, enforcing SEC rules and supporting the SEC in determining awards for whistleblowers. Motivated by the potential for large monetary awards, along with citizens' wanting to speak out about corporate wrongdoing, the expectation is that the number of individuals willing to report complaints to the SEC will increase dramatically.

This increase in activity is evidenced by the increase in these types of cases filed with the federal government since 2005, according to the Department of Labor's Occupational Safety and Health Administration (OSHA). While supporters of labor and shareholder interests are very much in favor of this trend, it puts increased pressure on corporations to ensure that strong internal compliance programs are in place as well as good communications and training to encourage internal reporting. Additionally, corporations are well served to have anti-retaliation policies in place.

OSHA administers multiple whistleblower protections under laws such as Sarbanes-Oxley and the Consumer Financial Protection Act. The agency has seen an increase in whistleblower complaints, specifically 2,339 charges in 2011 (through September 14, 2011), compared to 2,319 for all of 2010, and 2,158 in 2009.

Geoffrey Rapp, the Harold A. Anderson Professor of Law and Values at the University of Toledo's College of Law, commented on the increase in whistleblower charges. "The goal here is to get information about fraud before it becomes so serious, as in the collapse of [Bernard] Madoff and Enron, where the whole company falls apart, or the economy falls apart."

One such case recently concluded against Bank of America, in which the bank allegedly used retaliatory tactics against a whistleblower. OSHA ordered the bank to pay the former employee $930,000 in interest and back wages and to reinstate the employee.

The uptick in whistleblower activity garners conflicting opinions within the legal industry. Gregory Keating, co-chair of Littler Mendelson's whistleblower practice, believes that the monetary incentives are motivating individuals to go forward with unsubstantiated claims, citing examples of employees who were suffering from poor performance threatening to blow the whistle.

Those on the other side of the argument indicate that since government enforcers are limited, the new rules are necessary to incent corporate employees, who might otherwise be reluctant to come forward to blow the whistle on wrongdoing. Some also say that the increase in complaints is a sign of the times in which we live.

The 2010 Ethics & Workplace Survey by Deloitte reports that the financial collapse has compromised trust and ethics, highly important components in conducting business. The survey indicated that almost a third of employees reported that their colleagues are more likely to be unethical in this environment and that those planning to look for new jobs would do so as a result of a loss of trust in their employers.

Reuben Guttman, an attorney for Grant & Eisenhofer, a law firm specializing in corporate governance and fraud, stated that, "We live in an era where people are more open about second-guessing institutional activity." He also indicated that the financial collapse caused many people to "open their eye[s]. Entities we thought were reputable may be making misrepresentations and not telling the truth about what they're doing."


Increased motivation for whistle-blowing, AccountingWEB in Watchdog, November 18, 2010

More workers willing to blow the whistle on their employer, Careers on, September 19, 2011

Rise of the Whistleblowers, Law360, New York, August 22, 2011