The SEC is zeroing in on retaliation, confidentiality agreements, former company officers, and former compliance people. CFOs must set up rigorous internal compliance programs to address potential violations.
Recent whistleblower actions by the Securities & Exchange Commission (SEC) mean big challenges for CFOs handling corporate governance and compliance. As part of a program to boost effectiveness, the SEC is focusing on retaliatory behavior, confidentiality agreements, and the role of whistleblowers who were compliance personnel and former company officers. In addition, the SEC is making significant awards to new parties and punishing behavior designed to dull the program's effectiveness. Therefore, it's imperative that companies have rigorous internal compliance programs that address potential violations.
The SEC has taken a dramatic series of first-time actions cracking down on violations. In June 2014, the SEC announced its first anti-retaliation enforcement action, followed in August 2014 by its first whistleblower award to a compliance or internal audit employee. In March 2015, the SEC made its first whistleblower award to a company officer, followed a month later with its first enforcement action against restrictive language in confidentiality agreements. That same month the SEC made a whistleblower award of more than $1 million to an internal compliance officer.
SEC Chair Mary Jo White reinforced the tone of increased vigilance in an April 2015 speech to the Garrett Institute, warning that companies should take a hard look at whether their boards and senior management are championing key whistleblower issues. She concluded, "Gone are the days when corporate wrongdoing can be pushed into the dark corners of an organization."
The SEC's "2015 Annual Report to Congress on the Dodd-Frank Whistleblower Program" further underscored the new get-tough attitude. Sean McKessy, SEC Chief of the Office of the Whistleblower, reported that the nearly 4,000 SEC whistleblower tips received in fiscal year 2015 reflected a greater than 30% increase from about 3,000 tips received in fiscal year 2012. McKessy also stated that "the Commission has paid more than $54 million to 22 whistleblowers since the Commission's new whistleblower rules went into effect in August 2011."
All these events clearly show increased scrutiny of CFOs charged with corporate governance, who now must heighten the level of diligence about whistleblower programs.
WHO IS A WHISTLEBLOWER?
In 2010, Congress created the SEC Whistleblower Program through Section 922 of the Dodd-Frank Act to provide a monetary incentive for whistleblowers to report violations of the federal securities laws. But who qualifies as a whistleblower?
According to the SEC's Final Rules for implementing the program, an eligible whistleblower is an individual who voluntarily submits original information to the SEC (either by completing an online questionnaire or SEC Form TCR) that leads to a monetary sanction greater than $1 million in a Commission enforcement action. An eligible whistleblower doesn't need to be an employee of the company. And employees with compliance or internal audit responsibilities aren't normally eligible whistleblowers-unless the whistleblower first communicated the matter internally to appropriate officers or board members who then failed to take corrective action...