SEC Rewards to Compliance Officers Cause Angst

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By Yin Wilczek

July 17 — Companies are concerned about the SEC's bounty awards to compliance officers, a new survey shows.

Twenty-two percent of respondents to a Littler Mendelson PC survey said their executives may not approach the compliance department for fear that their information may be shared with the government.

Another 22 percent of the respondents indicated that their compliance departments may no longer be as effective given that compliance personnel would rather report wrongdoing to the government than focus on their job responsibilities.

A further 16 percent indicated that compliance officers will leverage their inside knowledge in a bid to obtain Securities and Exchange Commission rewards.

However, 30 percent of the respondents said they were not concerned by any of these potential outcomes.

Tread Carefully With Compliance 

The Littler Mendelson survey, released July 14, polled 503 in-house counsel, human resources personnel, C-suite executives and other professionals in April and May. The whistle-blower question was posed only to respondents from large and mid-cap companies.

Edward Ellis, co-chair of the law firm's whistleblowing and corporate ethics practice group, warned in a related release that companies should be concerned about all the issues raised in the survey.

“There are a myriad of risks for employers should they ignore the fact that compliance officers can wield a big stick,” Ellis said. “The SEC has made a clear effort to elicit more whistleblowers with proprietary knowledge of their companies’ compliance programs” and it is “up to employers to be proactive.”

The SEC's pursuit of compliance officers and their access to confidential information makes it all the more important to treat such employees with care, Connie Bertram, a Washington-based partner at Proskauer Rose LLP, told Bloomberg BNA.

Compliance Officers' Complaints 

For one, such employees should not be fired for raising concerns about fraud, Bertram said in a July 17 e-mail.

“In addition, before taking action against such an employee, companies should consult with counsel to conduct a review to determine whether they have raised any concerns or complaints that could be considered protected activity or the basis for a fraud claim,” Bertram said. “If so, the company should thoroughly understand the history of the complaint and the handling and resolution of it.”

Bertram added that it may be advisable for the company to revisit and address the concern if it was not handled properly in the first instance.

Under the SEC's bounty program, compliance and audit personnel, outside accountants, lawyers, and corporate officers and directors can't be rewarded for tipping off the commission except in three circumstances:

• when they have a reasonable basis to believe that reporting to the SEC is necessary to prevent the company from engaging in conduct that is likely to cause substantial injury to the financial interest or property of the entity or investors;

• when they have a reasonable basis to believe that the company is engaging in conduct that will impede an investigation; and

• when the perceived wrongdoing has not been internally addressed within 120 days.


SEC Rewards 

The SEC thus far has awarded two bounties to compliance officers. In April, the commission awarded a compliance worker more than $1 million dollars for blowing the whistle on possible wrongdoing that could cause substantial financial harm to the company or investors.

Last September, the commission awarded more than $300,000 to an audit and compliance professional whose employer failed to take action after he or she made an internal complaint about possible securities violations.

Sean McKessy, chief of the SEC's Whistleblower Office, has acknowledged corporate concerns about potential conflicts arising from the rewarding of compliance officers, However, he said earlier this year that if the individual qualifies under the strict parameters of the SEC's requirements and exposes wrongdoing that the company is trying to conceal, then it is entirely appropriate that the informant be rewarded.

To contact the reporter on this story: Yin Wilczek in Washington at

To contact the editor responsible for this story: Ryan Tuck at

The survey and release are available at

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