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Regulators Want 'Culture of Compliance' Handling Whistle-blowers In-House, Panel Says

Friday, January 24, 2014
By Rob Tricchinelli

Jan. 22 — Cracking down on employer retaliation against whistle-blowers and ensuring that companies are adequately allowing internal reporting of potential lawbreaking are on federal regulators' agenda for the upcoming year, according to a Jan. 22 webcast hosted by the American Bar Association.

“One of the pressing issues for is this year is we have the authority to enforce the anti-retaliation provisions,” Sean McKessy, director of the Securities and Exchange Commission's Office of the Whistleblower, said, “which basically indicate that employers shall not take any action in retaliation for reporting potential securities law violations to us.”

Christopher Ehrman, director of the whistle-blower office at the Commodity Futures Trading Commission, and Stephen Whitlock, who holds the same position at the Internal Revenue Service, also were on the panel.

The SEC and CFTC's whistle-blower offices were created by the Dodd Frank Wall Street Reform and Consumer Protection Act. The IRS's office was created by a 2006 statute. All three agencies may give awards to whistle-blowers whose tips lead to monetary sanctions or penalties. The awards are a percentage of the money paid to the regulator, typically 10-30 percent.

“We're a nascent program, we're up and running, and we do have a track record of making payouts,” McKessy said, adding that payouts will likely increase as the program becomes more established. The SEC received more than 3,200 whistleblower tips in the 2013 fiscal year.

Internal Reporting
The panel said they want companies to have a “culture of compliance” to properly handle whistle-blowers' tips about a company internally, before involving federal regulators.

“Sometimes we've had whistle-blowers come in and they'd tried to report internally, and the reason they came to is because they felt like they got blown off, that their concerns were not dealt with seriously by the internal compliance people where they worked,” Ehrman said.

Most people who come to the SEC with a complaint about a current or former employer, McKessy said, do so after “experiencing some level of frustration around the fact that reporting internally didn't give them any satisfaction.”

To combat this, “there are enumerated economic incentives written into the rules to encourage whistle-blowers to report internally before coming to us,” Ehrman said.

For example, he noted, if a whistle-blower's tip leads to an internal investigation, the fruit of that investigation is attributed to the whistle-blower, which could lead to a larger award.

To contact the reporter on this story: Rob Tricchinelli in Washington at

To contact the editor responsible for this story: Phyllis Diamond at

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