The Need to Strengthen Anti-Reprisal Protections within the SEC Whistleblower Program

Ensuring a proactive working environment should be a priority for any company. Creating and maintaining an ethical procedure is key to making this happen. This means an organization should maintain avenues so that whistleblowers – courageous individuals who expose wrongdoing at great personal risk to themselves – feel comfortable when coming forward. Employees should be emboldened to voice concerns to superiors since both parties should care deeply about their company’s reputation and success.

Providing this communication could increase business productivity: Whistleblowers whose complaints are answered enjoy renewed faith and motivation, while the organization corrects illicit activity as soon as possible (and in all likelihood, more frugally than letting it fester). However, if this culture does not exist, abuse is left to expand. A company can become dependent on shoddy reporting practices and budget shortfalls, and find itself the target of government audits and scrutiny. In the end, no company, regardless of true intentions, wants to cause such self-harm.

Recently, financial whistleblowers have begun to enjoy external disclosure opportunities in addition to those provided within the corporate context. The 2010 Dodd-Frank Wall Street Reform & Consumer Protection Act created the Office of the Whistleblower (Whistleblower Program) within the Securities & Exchange Commission (SEC). The office is responsible to hear allegations of corporate fraud. Similarly, an SEC bounty program has also been created, offering financial rewards to whistleblowers that successfully shed light on corporate illegality resulting in sanctions exceeding $1,000,000 by the guilty institution. Whistleblowers can receive between 10% and 30% of the money surrendered from an SEC investigation. The bounty program incentivizes employees coming forward, albeit with associated risks.

The SEC whistleblower program is crucial because it affords truth-tellers with alternative methods to disclose wrongdoing, instead of relying on internal mechanisms. Solely relying on internal disclosures can prove ineffective, since whistleblowers may be forced to surrender evidence of abuse to their employers, opening the door for retaliation from adversarial officers who can then frame the issue to inquiring regulators. Moreover, recent court rulings have created confusion as to whether employees enjoy anti-reprisal rights under the SEC Whistleblower Program when they make disclosures within their companies.

While the SEC Whistleblower Program created by Dodd-Frank is a step in the right direction, there is still work to be done. Even with internal and external reporting, whistleblowers are subject to extensive reprisal. They can be demoted, transferred or even fired with little explanation or warning. These actions are often associated with verbal and non-verbal abuse, harassment, and humiliation. For many whistleblowers, retaliatory tactics have caused irrevocable damage to their careers while making their workplace environment untenable.

This situation is evidenced by the first case to bring anti-reprisal enforcement actions under the Whistleblower Program. Even though the whistleblower was able to report fraud to the SEC, the employee was ill-equipped to withstand the effects of whistleblowing within his work environment. After learning that an employee reported abuse to the SEC, the institution at fault demoted the whistleblower, filled his time with menial tasks, and alienated him from his colleagues. This is too large of a price to pay with the new whistleblowing protections provided by the SEC.

That is why GAP is spearheading an effort to bolster SEC Whistleblower Program anti-reprisal protections on July 30, National Whistleblower Appreciation Day. Among other events, a panel, “Strengthening Anti-Reprisal Rights under the Dodd-Frank Financial Reform” will examine appropriate rule-making for the SEC to clarify and strengthen protections available to those who report misconduct internally or externally.

While a variety of disclosure methods aid in whistleblowers’ struggles to effect positive change, whistleblowers need to be protected from the repercussions of reporting. Telling the truth is inherently challenging; it is more difficult when doing so goes against a system that favors the status quo. With the help of GAP and its partners, whistleblowers will feel more secure in holding financial institutions accountable and voicing change for the better.