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Since the passing of Dodd-Frank in 2010, the Securities and Exchange Commission (SEC) has experienced increasing success with its whistleblower awards program with a pay out to date of over $50 million.
This presents a challenge for companies. The financial incentives, along with strong legal protection measures for whistleblowers, have encouraged more employees to supply the SEC with information regarding misconduct. This group of tipsters can even include the company’s own compliance officers and legal department. In addition, these proceedings are notoriously complex, and companies must decide on the right course of action while facing tough reporting deadlines.
In the past, corporate employees had few incentives and took many risks when they stepped forward to report on possible violations or fraud in their company. Judging by an increase in tips from 334 in 2011 to over 3,400 in 2014, the awards program has changed all of that. According to the SEC, a whistleblower may hope to earn a payday between 10 and 30 percent of recovered funds for any qualified tips that lead to a successful action that recovers over $1,000,000 in penalties. In 2014, the SEC announced its largest ever award of more than $30 million.
Companies have had to adjust to increased scrutiny, especially from inside. This is complicated by the fact that the very compliance officers who are charged with ensuring that companies do not break the rules may be entitled to awards in some cases.
Some employees may choose to bypass regular corporate compliance channels and head straight to the SEC with charges of wrongdoing or oversight that might have been handled internally in the past. (The SEC claims the intention of the program is to encourage individuals to work with the company’s own compliance program, and takes into account whether misconduct was first reported to the company.) The SEC has also publicized its intention to review cases of retaliation more aggressively.
The SEC has stated that directors should view themselves as gatekeepers for their shareholders. In this current environment, companies should have established procedures that allow employees to submit complaints without difficulty and fear of retaliation. In fact, current confidentiality agreements (particularly anti-retaliation policies) should be reviewed.
Companies should also be committed to systematically checking complaints and reviewing them in a timely manner.
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