As a public company executive officer or general counsel, how should you deal with a disgruntled employee who is or could be an award-seeking SEC whistleblower?

The short answer is, of course, very carefully. For the longer answer, read on.

The SEC’s Cultivation of Whistleblowers

Corporate managers and the SEC tend to have very different views of employees complaining of possible violations. Corporations frequently have painful experiences with troubled employees who see violations that don’t exist. Although the SEC has had similar internal experiences, when it comes to employees of public companies and financial institutions, the SEC is, in the first instance, inclined to believe the employee and not the company.

The Commission and its enforcement staff are unabashedly enthusiastic about rewarding and protecting individual whistleblowers. Congress did not impose the whistleblower award provisions in the Dodd-Frank Act on the Commission. The Commission asked for those provisions, because it believes that many companies are not adequately policed by themselves or their auditors or attorneys, and will not willingly self-report possible violations of the federal securities laws.

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