The headlines lit up this month when the Securities and Exchange Commission (SEC) issued its first-ever award to a whistleblower who wasn’t employed by the company on which he had blown the whistle. The award was a “game-changer,” the Wall Street Journal reported, shedding light on the SEC whistleblower program’s “extraordinarily expansive reach.”
While the award is certainly noteworthy, it’s not clear whether the award will in fact be a new landmark in whistleblower liability. Let’s look at the facts:
- On Jan. 8, the SEC issued a $700,000 whistleblower award to an undisclosed industry expert who helped the commission levy an enforcement action against an undisclosed company.
- This was the first time the SEC has issued a whistleblower award to a person not employed at some point by the company that the agency took action against.
Technically, Outsiders Have Always Been Able to File Whistleblower Reports
While it’s the first such award, in reality outsiders have always been able to file whistleblower reports. It rarely occurs—not because outsiders never had financial incentives but because they are much less likely to independently identify and provide sufficient evidence of wrongdoing to merit rewards.
So if this case tells us anything at this point it’s not that companies should be more worried about outsiders filing whistleblower reports. Instead it points, once again, to the imperative they should place on internal reporting processes and creating cultures of compliance.
If An Outsider Can Spot a Problem, Insiders Already Knew About It
What is even more troubling is the fact that, if an outsider can see wrongdoing in your organization, then the insiders have probably been witnessing it for some time. Giving your employees clear channels for reporting what they saw, and creating an environment where they feel supported and encouraged to do so, will allow you the earliest chance to respond to and rectify those complaints. Awareness of inside reporting channels, timely investigations and mitigation, along with a strong and effective compliance program, are still the best tools for reducing the likelihood of a SEC whistleblower from inside the company.
Some companies (though not many as should) extend their reporting processes and training to contractors and other third parties. Perhaps this new SEC award will prompt more organizations to go that route, which we’d encourage.
Bottom Line
The SEC’s Office of the Whistleblower is nearly drowning in reports of corporate misdeeds. The more that organizations can create a culture to encourage early, in-house reporting of compliance failures, assess and investigate the issues, and deal with it themselves, the better off—and better protected—they'll be.