By Michael Bologna
May 5 --Public companies should prepare for a new wave of Securities and Exchange Commission enforcement actions stemming from whistle-blower complaints, securities lawyers said May 2 at a legal institute gathering.
William Michael, a partner with Mayer Brown LLP in Chicago and co-chair of the firm's white collar defense practice, said publicity surrounding the growing number of awards to whistle-blowers already is motivating new whistle-blowers to come forward.
Michael noted that 3,001 complaints were filed with the SEC's Office of the Whistleblower in 2012 and 3,238 complaints in 2013. He said 6,573 complaints have been filed since the Office of the Whistleblower was created in 2010.
Michael noted that the office announced its first major award late last year, paying $14 million to a whistle-blower, who provided information that triggered an SEC enforcement action and recovered substantial investor funds .
“What you are going to start seeing is many of these complaints--the 3,000 that have been filed in each of the last couple of years--are going to start coming to fruition. That is when the awards will start happening,” Michael told practitioners attending the Northwestern University School of Law's annual Ray Garrett Jr. Corporate and Securities Law Institute.
He added, “as you look at this process, you are going to see these cases increase.”
Junaid Zubairi, chair of the government enforcement and special investigations practice at Vedder Price in Chicago, agreed and said the awards would trigger growth in initial complaints coming into the commission.
“I think we will see growth in this area of individuals and employees going directly to the government,’’ Zubairi said during the same panel discussion.
The Dodd-Frank Wall Street Reform and Consumer Protection Act provided for a whistle-blower program within SEC. Under the program, individuals who supply high quality original information that leads to an SEC enforcement action--in which more than $1 million in sanctions is ordered--may be awarded between 10 percent and 30 percent of the money collected.
Dodd-Frank also included enhanced anti-retaliation employment protections for whistle-blowers and provisions to protect their identity. The law restricts the SEC from disclosing any information, including information that could reveal the identity of the whistleblower.
“So you have now a system in place where whistle-blowers can obtain bounties for providing information on, in essence, securities violations. [However, the system] is a little broader than that because it also applies to mail fraud, wire fraud and bank fraud,” Michael said.
In this new climate, Zubairi said public companies need to reexamine their internal whistle-blower policies and procedures.
He said strong internal programs tend to alleviate the frustration and mistrust that frequently drive employees into federal whistle-blower programs.
“What can companies do to foster internal reporting? I think there has got to be direct communication to the employees that: we take your concerns seriously; we are going to listen to you; we understand where you are coming from and we can evaluate the concern you have raised in a thorough, thoughtful way that has everyone's interests in mind,” he said.
Zubairi, a former SEC enforcement lawyer, added, “if that is the message, then I think there are many situations where individual employees are not necessarily interested in making it into a bigger deal with regulators.”
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