Reasons why the SEC whistleblower-reward program has been a success

When whistleblower-reward program was included in the Dodd-Frank Act by the Congress, the program would face a significant opposition. There were many high-street banks and agencies, with the Chamber of Commerce, who disputed the idea saying that it’d destabilize the compliance program, creating a stubborn financial incentive for the employees who’d come forward with organizational misconduct claims. Six year had passed by since the claims and arguments, the program, however, has proven to be an absolute success as it has enabled the SEC to investigate frauds, prevent financial crisis and protect investors. Whistleblowers’ passing of information has allowed SEC to make a recovery of more than $1 billion from wrongdoers in financial penalties.

There are numerous reasons why Dodd-Frank SEC whistleblower-reward program has been great success.

1. The program enables whistleblowers to submit their tips to the SEC anonymously, especially the ones represented by counsel. In some circumstances, a whistleblower can request to keep their identity from the SEC as well, until their reward is determined. Also, a whistleblower’s identity can be kept from the public even at the time of declaring the reward. This is one of the significant perks over other whistleblower-reward programs that hardly allow whistleblowers anonymous submissions, for example – IRS whistleblower-reward program.
2. The SEC whistleblower-reward program provides a major financial incentive for the employees who help in identifying the systematic fraud, concerning risk that follows whistleblowing. So far, over $154 million has already been awarded to the whistleblowers via SEC Whistleblower Office. In 2020, the office, alone, issued over $50 million via its program. 
   
3. SEC has always stood firm against ‘gag clause’ in absolute severance, confidentiality and other employment-related contracts. SEC concludes that these kinds of contracts breach Rule 21F-17 that happens to forbid many organizations to stop whistleblowers from going ahead with their claims. Rule 21F-17, a regulation that has implemented the Dodd-Frank SEC whistleblower-reward program, constitutes which is pertinent to “[n]o individual might take any action to encumber a person from talking directly to the Commission staff regarding a potential securities law breach, including a threatening to enforce or enforcing a confidentiality contract, in respect of communications.
   This kind of prohibition is vital to the effective success of whistleblower program, because organizations often take help of overly extensive confidentiality contracts to punish or silence the whistleblowers. 
4. SEC chases enforcement actions as a remedy to the retaliation that whistleblowers typically endure. Some years back, SEC supplicated International Game Technology to pay a $5000,000 penalty as they terminated the  employment of the whistleblower as he reported company’s distorted financial statements to the senior management as well as well to the SEC.
   

In a nutshell, unlike corporate America’s avowed concerns, the SEC whistleblower-reward program never undermines the internal compliance programs. As per the SEC whistleblower office’s annual report to Congress, ‘about 80% of whistleblower award recipients came forward with their concerns internally, first, before taking the matter up to the SEC. This is no surprising, considering that the SEC whistleblower-reward program is to galvanize internal reporting by maximizing the award percentage in which whistleblower report the fraud or wrongdoing internally via their company’s internal reporting mechanisms or channels before reporting to the SEC. Also, most whistleblowers are mainly driven by their yearning to justify the public interest and fight illegal conducts, certainly not by a payout. There are, indeed, many such whistleblowers who turn down their awards; and rather request that their share of the award to be given the people who suffered monetary loss.

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Created on May 12th 2021 12:40. Viewed 561 times.

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