Remaining Attuned to Internal Whistleblower Reports

John F. Savarese, Ralph M. Levene, and Wayne M. Carlin are partners at Wachtell, Lipton, Rosen & Katz. This post is based on their Wachtell Lipton memorandum.

The SEC’s whistleblower program has long been a centerpiece of its enforcement efforts. Over the past seven weeks alone, the Commission has announced eight whistleblower awards totaling more than $56 million, including a single award on April 16 of $27 million, the largest of the year and the sixth largest award overall since the inception of the program. Because the coronavirus pandemic has understandably dominated the news over that same period, this striking accumulation of whistleblower awards has received little press attention.  But we think these recent awards provide a telling and significant reminder of the critical importance, even in the current challenging environment, of keeping employee hotlines open and of responding to internal compliance reports promptly and effectively.

All companies wishing—sensibly and appropriately—to avoid becoming enmeshed in a whistleblower-inspired SEC investigation should promptly take two important steps:

  • Refresh the company’s existing internal hotline, ombudsman or other reporting system by prominently reminding employees about how the system works and how to access it, and also include in such reminders a forthright statement from senior executives encouraging employees to take advantage of the company’s internal reporting mechanisms in any and all cases of compliance issues, accounting irregularities, workplace safety, or other suspected misconduct; and
  • Take steps to ensure that the company has—notwithstanding coronavirus-related disruptions—the resources and institutional expertise necessary to respond to all such reports in a timely, well-documented and appropriate manner that preserves the anonymity, if requested, of anyone making such reports, including by adjusting internal controls, changing internal audit scopes and priorities, or providing additional training.

In this time of extreme stress and uncertainty, companies are, not surprisingly, primarily focused on fashioning effective responses to the coronavirus emergency, protecting employee health and safety, preserving liquidity and access to credit markets, and retooling business plans. But, as this recent wave of substantial SEC whistleblower awards reminds us, it would be a mistake to put responding to internal compliance concerns on the back-burner.

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