SEC Chair White Discusses the SEC’s Whistleblower Program (with Lofchie Comment)

SEC Chair Mary Jo White discussed the SEC's whistleblower program and the SEC's role as "whistleblower's advocate" at the Ray Garrett, Jr. Corporate and Securities Law Institute - Northwestern University School of Law.

Chair White commented that the SEC's whistleblower awards program, "while clearly still developing, has proven to be a game changer." She acknowledged that there have always been mixed feelings about whistleblowers, but stated that they provide an "invaluable" public service and should be supported.

Chair White explained that administering the whistleblower program has presented the SEC with a number of challenges. For example, Chair White mentioned that its Whistleblower Office must thoroughly address every claim and make recommendations to the SEC, even those claims from "serial submitters" who file a claim for almost every case in which over $1 million in sanctions is awarded when there is no connection between their tip and the case. She also discussed the circumstances and exemptions regarding individuals who may or may not be eligible to claim a whistleblower award.

Increasingly, as the program expands and receives more tips, Chair White stated that the SEC is becoming the "whistleblower's advocate." She went on to explain that one of the goals of the whistleblower program is to foster strong compliance cultures programs within companies, and that whistleblowers should be embraced "as a constructive part of the process to expose the wrongdoing that can harm a company and its reputation." She stated that compliance programs are "as strong as ever," and believes 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."

Lofchie Comment: A systeM&Amp; that rewards individuals who do not make any attempt to address a problem internally, but instead seek to profit opportunistically with a secret outside call to the government, is flawed, regardless of whether it is "effective." A system that encourages those who spot a problem to attempt to fix that problem internally will result in fewer tips to the government, but this is preferable to a system in which the government motivates and rewards distrust among a firm's co-workers.The whistleblower program should not reward an individual working at a firm unless: (i) the individual first makes a reasonable attempt to call the problem to the attention of firm management and the problem was not addressed or (ii) in rare circumstances, either the person reasonably believes that he or she would have been in danger from making the report to management or the wrongdoing was a material, imminent and nonreversible act, such that it would be imprudent to chance the act or go forward without correction.

See: Chair White's Speech.