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Just one year after the Dodd-Frank whistleblower rules took effect, the Securities and Exchange Commission this week doled out its first bounty award to a whistleblower who helped the agency stop what it described as a multi-million dollar fraud, and if Sean McKessy, chief of the Office of the Whistleblower, has anything to say about it, it won’t be the last.
Sean McKessy
In an interview with NACD Directorship, McKessy says his office is receiving about eight tips a day and is preparing for an increase in tip volume. “We are ramping up our own internal workforce and will be bringing on four attorneys, a paralegal and a program support specialist,” he explains. “We will continue to leverage the expertise of a large, diverse group of professionals in the market intelligence and trial units to handle additional, good information.”
McKessy is also quick to point out although there has been some speculation that by making this first bounty payment the office is opening tipster floodgates, which could be resource-draining, it’s quite the opposite. “People who come to us are providing us with high-quality information, and when we have that we are net resource saving,” he says. “To the extent we see an increase in volume [of tips], if that increase has a corresponding increase in quality, we are well prepared to take advantage of that and get good information.”
The whistleblower set to receive the SEC’s first bounty has requested anonymity and will receive almost $50,000—30 percent of what the SEC has collected in the case—and the maximum the SEC is allowed to pay out. However, if the SEC collects more, the whistleblower’s award will increase, according to the SEC press release.
The whistleblower provided the SEC with documents and other relevant information that allowed the agency to rapidly complete an investigation. The information provided by the whistleblower resulted in a court ordering more than $1 million in sanctions.
The bounty award may prove to be both a lucrative and functional option for tipsters. The Huffington Post reported that whistleblowers who take tips to the FBI are likely not to receive any compensation for their information, and whistleblowers who go to the IRS have a 0.2 percent chance of getting money for their tips. However, the establishment of a bounty award wasn’t solely based on money. “The purpose was to encourage people to come forward if they know about wrongdoing in a company,” McKessy says. The idea was that we want people with good information to report it and we put incentives in.”
When the whistleblower program was announced last year, companies worried employees wouldn’t report tips internally and go straight to the SEC since internal reporting is not a condition of receiving the bounty award. “We wanted to empower whistleblowers to make the decision. They are in the best place to decide whether reporting internally is a good measure and if they won’t be retaliated against,” McKessy says. “Our rules allow someone to do that and still get paid by us.”
However, a study by the Ethics Resource Center found that only 2 percent of employees went outside the company to report wrongdoing. McKessy says that a significant majority of those who brought tips to the Office of the Whistleblower, who were reporting on their current or former company, claim they first tried to report to someone internally—a boss, a compliance hotline or the board. “I think that speaks to the fact that—notwithstanding the claims we are destroying internal compliance—most people view their own company as the first line of defense,” McKessy said.
With the first bounty award on the books, McKessy says his office is spending a good deal of time on the anti-retaliation provision of the Dodd-Frank statute. That provision gives the SEC the power to enforce any anti-retaliation taken by employers against whistleblowers. “We’re encouraging attorneys to collect information on who reported the wrongdoing and what actions, if any, have been taken from a personnel standpoint in connection with individual who reported,” McKessy says. “Quality information is the lifeblood of the program. If people think if they report wrongdoing they get fired or risk other retaliation, that well will dry up quickly.”
While McKessy says some may measure the success of the whistleblower program by the payments made, he points to another benchmark: “The program is successful if it shows people came forward who otherwise wouldn’t have.”
I think “the success of the whistleblower program” is not indicated by showing “people came forward who otherwise wouldn’t have”, because the award may be the motivation to come forward and not an ethical good. The success will be indicated if the program reduces the number of cases where whistleblowing is necssary.