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SEC: We ♡ whistleblowers (and compliance officers)

Securities and Exchange Commission Chair Mary Jo White (Image courtesy of C-Span)Here’s some of what SEC chair Mary Jo White had to say last week in a speech at Northwestern University School of Law in Chicago, Illinois. Her talk was called “The SEC as the Whistleblower’s Advocate.”

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Let me say a bit more about company compliance programs. When the [SEC] was considering its whistleblower rules, concerns were raised about undermining companies’ internal compliance programs. Some commenters urged that internal reporting be made a pre-condition to a whistleblower award. That was not done, but the final whistleblower rules established a framework to incentivize employees to report internally first.

A whistleblower’s participation in internal compliance systems is thus a factor that will generally increase an award, whereas interference with those systems will surely decrease an award. And, a whistleblower who internally reports, and at the same time or within 120 days reports to the [SEC], will receive credit for any information the company subsequently self-reports to the SEC.

All indications are that internal compliance functions are as strong as ever — if not stronger — and that insiders continue to report possible violations internally first. Although there is no requirement under our rules that the whistleblower be a current or former employee, several of the individuals who have received awards were, in fact, company insiders. Notably, of these, over 80% first raised their concerns internally to their supervisors or compliance personnel before reporting to the Commission.

Many in-house lawyers, compliance professionals, and law firms representing companies have told us that since the implementation of our program, companies have taken fresh looks at their internal compliance functions and made enhancements to further encourage their employees to view internal reporting as an effective means to address potential wrongdoing without fear of reprisal or retaliation. That is a very good thing, and, so far, we believe that the whistleblower program has achieved the right balance between the need of companies to be given an opportunity to address possible violations of law and the SEC’s law enforcement interests. . . .

To sum up, after nearly four years of experience, what is our assessment of the Dodd-Frank whistleblower program and how should companies be responding?

First, we know that the regime does, in fact, create powerful incentives to come to the [SEC] with real evidence of wrongdoing that harms investors and it meaningfully contributes to the efficiency and effectiveness of our Enforcement program. And whether the whistleblowers are reluctant or eager, motivated by a desire to do what’s right or by the prospect of financial reward, or both, they have, and will continue to, come forward.

This reality should create at least equally strong incentives for companies to build truly effective compliance programs and to foster atmospheres where internal compliance reporting is not only tolerated, but actively encouraged. To that end, companies should take a hard look at whether their boards and senior management are promoting these priorities. 

By some accounts, there is more work to be done. In one survey of 2,500 executives world-wide, as few as 7% of companies say whistleblowing is important for their organization and 44% say they do not have whistleblower policies or fail to publicize them. If that is so, it is little wonder that we are still wrestling with troublesome corporate cultures.

We also know that retaliation against whistleblowers occurs, sometime starkly, sometimes more subtly — and that is very troubling. For the SEC’s part, we are working hard to foster a safe environment for whistleblowers by investigating and charging those who retaliate as well as those who, whether inadvertently or not, take actions or use agreements that could chill the willingness of employees to report violations of law to the SEC.

Companies should be asking themselves if they have created an environment where employees can report internally without fear of retaliation. Are they creating uncertainty through non-disclosure and other confidentiality agreements that could imply that such reporting might not be allowed?  Again, there is some indication that management may need to work harder at this — those same 2,500 executives in the survey report that 40% of their companies discourage whistleblowing.

As with any enforcement program, the ultimate goal of our whistleblower program is to deter further wrongdoing. It is no doubt too early to draw conclusions about whether the program has altered corporate behavior and reduced wrongdoing. But we certainly hope it has and will continue to do so. And we are not alone in this hope and expectation.

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Mary Jo White’s full remarks at the Ray Garrett, Jr. Corporate and Securities Law Institute-Northwestern University School of Law in Chicago, Illinois on April 30, 2015 are here.


Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.

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1 Comment

  1. Something seems a bit askew and asquint here.

    Mary Jo White has obviously taken an effective, aboveboard, investigative, and prosecutorial approach to the management of Whistleblowing matters while Leslie Caldwell, the Chief of the DOJ's Criminal Division, would issue "Cooperation Credits" to informers and moles. (FCPA Blog here )

    Informers and moles "smack" of toadies for a totalitarian state versus legitimate whistleblowers who are distinctly different. One such person is of the Genus Coward and the other usually of the Genus Hero.

    What are we to expect after the mix of the two?

    In the meantime, hats off to Mary Jo White!

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