According to the 2021 Annual Report to Congress from the United States Securities and Exchange Commission (SEC) Whistleblower Program, the SEC awarded over $1.1 billion to 214 individuals for providing high-quality information that led to the success of SEC and other agency enforcement actions. The SEC stated that 2021 saw the highest number of awards in not only terms of dollars and individuals awarded ($564 million to 108 individuals) but also the largest number of whistleblower tips received and the Commission making more whistleblower awards in fiscal year 2021 than all prior years combined.
The Commodity Futures Trading Commission (CFTC) also has a Whistleblower Program that provides monetary incentives to people who report violations of the Commodity Exchange Act. Reporting violations is not always easy, and many people can be too frightened about possible job consequences to report violations in some cases.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (also known simply as Dodd-Frank) amended the Securities Exchange Act of 1934 (Exchange Act) by adopting Section 21F, entitled “Securities Whistleblower Incentives and Protection.” Section 21F directs the Commission to make monetary awards to eligible people who voluntarily provide original information leading to successful Commission enforcement actions resulting in monetary sanctions over $1 million and successful, related actions.
Awards must be made in amounts that are 10 percent or more and 30 percent or less of the monetary sanctions collected. To ensure that whistleblower payments do not diminish the amount of recovery for victims of securities law violations, Congress established a separate fund called the Investor Protection Fund (Fund), from which eligible whistleblowers are paid.
The Commission established the Office of the Whistleblower (OWB), an office within the Division of Enforcement, to administer and effectuate the whistleblower program. It is OWB’s mission to protect investors by administering an efficient, high-quality whistleblower program that is responsive to whistleblower needs and helps the Commission identify and stop securities law violations.
In addition to establishing an awards program to encourage the submission of high-quality information, Dodd-Frank and the Commission’s Whistleblower Rules also
established confidentiality protections for whistleblower submissions, including the
ability to file a whistleblower tip anonymously with the assistance of an attorney.
Employers are prohibited from retaliating against whistleblowers for providing
information to the Commission.
Whistleblowing is important for businesses because it is a regulatory requirement, meaning there is a legal obligation to implement whistleblower channels and protect whistleblowers when they raise reports of fraud, corruption, or other misconduct. In the United States, whistleblower systems are required by laws such as the Sarbanes-Oxley Act and the Dodd-Frank Act.
This is also true for many private businesses working on government contracts as well as businesses in Europe, where the European Union’s Whistleblower Protection Directive is the law of the land. Even without regulatory imperatives, a strong culture of internal reporting and whistleblower protection makes good business sense.
There are several benefits to whistleblowing, including the following:
● It’s ethical. All businesses have ethical obligations to protect and support their employees, including protecting employees who raise alarms about possible misconduct.
● It protects a company. Many employees will want to speak out about any problems they see within their workplace, and employers
must embrace this impulse. Encouraging openness will be better than employees not caring about what might be wrong with a business. Creating a culture of whistleblowing can help identify any threats, including threats that may not involve employee misconduct.
● Minimize risks and costs. When misconduct continues for an extended period of time, it can become more expensive to resolve. Whether misconduct relates to criminal legal violations, workplace harassment possibly leading to civil lawsuits or innocent errors that could leave a business exposed to risk, whistleblowers should feel confident in speaking up because they are ultimately helping a company save money in the long run.
● Avoid wrongdoing. If employees plotting misconduct know that other employees may call them out, the same employees will be less likely to attempt any wrongdoing.
● Get more detailed insight into issues. Management may already know there is a problem with their business but may not know exactly what is wrong. Whistleblowing could provide the critical evidence management needs to get a full idea of the bigger picture and develop an appropriate response.
● Improved communication and trust. Studies have shown that businesses with strong cultures of internal reporting get more internal reports and achieve better business outcomes because they face fewer lawsuits and negotiate smaller settlements if litigation does occur. Not only will a company have efficient operations, but they will also get fewer negative headlines.
Did you need help exploring your whistleblowing options? Make sure you speak to Steinberg Law because we can help you navigate the entire process.
Our firm works on cases nationally and internationally on both the state and federal levels. You can call (818) 855-1103 or contact our Los Angeles small business attorney online to set up a free consultation.