In my last blog entry I began a report on a speech I heard recently, that
was given by Sean McKessy, the Director of theSEC Office of the Whistleblower. Mr. McKessy spoke on a panel with Vincent Martinez, Director of the CFTC
Whistleblower Office, and Stephen Whitlock, the Director of the IRS Whistleblower
Office. The panel was part of a conference put on in Washington, D.C., by
Taxpayers Against Fraud.
Mr. McKessy stated that the SEC office is receiving a truly astonishing
8 complaints every day. I reported on this figure in an earlier
whistleblower legal blog post about the SEC Commissioner’s statements. While corporations
predicted that the SEC office would be overwhelmed with false charges
by people hoping to chisel money out of corporate America and into their
own pockets, McKessy said that in fact the SEC has not seen been overwhelmed
with the tips coming in. The whistleblowers have been ex-spouses, CEO’s
and former CEO’s, victims of fraud whose brokers misappropriated
their money, market observers who have noted unusual spikes or insider
trading, other countries, and states.
The SEC is particularly interested in several serious areas of fraud, Mr.
McKessy explained: inadequate or false corporate disclosures, market manipulation,
fraud in public offerings, violations of the Foreign Corrupt Practices
Act, insider trading, securities law violations, Ponzi scheme, crowd funding
by using Twitter or social media to raise money for unauthorized securities
offerings, individuals or corporations who are guaranteeing returns. Mr.
McKessy noted that whistleblowers who know about corporate disclosure
fraud are particularly helpful, because the SEC has no way of knowing
about that type of fraud unless an insider comes forward to blow the whistle.
The SEC has the power to bring claims against companies that retaliate
against whistleblowers, but McKessy said that the SEC still is exploring
how it will use those powers to fight retaliation. The SEC is particularly
interested in receiving documents where companies have required employees
to report a violation internally first, that have language excludes an
employee from the SEC whistleblower program. The SEC also was interested
in any severance or confidentiality agreement that provided that the employee
would not report to the SEC or would tell the company everything that
the employee told the SEC, or that provided as a precondition of severance
or of employment that the employee would never tell a regulator what went
on. Mr. McKessy issued a strong warning against any lawyers who may be
thinking of advising their companies to include that language, saying
that the SEC also was interested in going after the lawyers so that they
would be excluded from practicing before the commission. Mr. McKessy noted
that even if the employee’s report is wrong, it is a wrong thing
for the company to punish the person who reported the matter.
Mr. McKessy said that the SEC will post the fines that it has made, and
that a whistleblower can come forward within 90 days to claim all or part
of the whistleblower’s percentage of 10 to 30%. While certainly
that method could be a backup way of notifying the whistleblower, for
the most part the SEC will know exactly who the whistleblower had been,
and I certainly hope that the SEC intends to tell those people directly
about the fines that have been levied as a result of the tips they provided.
Mr. McKessy noted that the reward can be shared among multiple whistleblowers.