How Dodd-Frank Changed Whistleblowing Forever

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Throughout history, people have blown the whistle when they’ve seen companies do things that aren’t right, but the number of whistleblowers has certainly increased in the years since the Dodd-Frank Act. At the Berkeley Center for Law and Business’ Virtual Fraud Fest last week, panelists talked about whistleblower trends.

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The moderator of the panel on whistleblowers asked attorney Erika Kelton about the impact the Dodd-Frank Act has had on whistleblowing. She said the act essentially released pent-up demand. She said they started seeing inquiries about it the day the act became law, and things haven't let up since then.

Kelton added that the Securities and Exchange's whistleblower office got over 5,000 submissions last year. This year, it's on track to exceed that. Between March and May, the office received over 4,000 submissions.

Where Dodd-Frank Comes Up Short In Creating Partnerships Between Whistleblower And Development

She also feels that the Dodd-Frank Act doesn't go far enough in creating partnerships between the whistleblower team and the development team. She said the Dodd-Frank Act also created a companion program, the CFTC whistleblower program.

Kelton explained that other programs establish more cooperation between the whistleblower and the government. She mentioned the False Claims Act and how it works effectively to have a public/ private partnership between the government and private counsel, enhancing the resources of the government.

"I think that the Dodd Frank programs would do well, even better if they had that kind of mechanism, perhaps on a selective basis," she said. "I also think that there are improvements that can be made and a lot has been observed about this regarding the pace of awards."

Sophistication in whistleblowing

Attorney Michael Osnato agreed with Kelton that Dodd-Frank was transformational for whistleblowing and that there was pent-up demand when the law was enacted. He also said whistleblowing has changed a lot since the law went into effect.

"Many whistleblowers are like people, they're generally crazy, and they get things wrong," he said. "So there was a wave, I think, of whistleblowers who had something to say, but didn't have the sophistication to package it the right way. By the time I left the SEC in 2017, you know, there was a class of highly sophisticated whistleblowers."

He said these sophisticated whistleblowers knew how to package matters in a compelling way and give them to the government with an effective roadmap for the enforcement action.

Attorney Jordan Thomas noted that one thing that doesn't get much attention is how the SEC has started to crack down on secrecy or confidentiality agreements which prohibit people from reporting a variety of different types of wrongdoing, including sexual harassment and environmental violations. He said the agency is ensuring that people can report all forms of violations at both the state and federal levels.

Retaliation concerns

Whenever someone is thinking about blowing the whistle, there is a natural concern about retaliation. Thomas noted that like anyone else, whistleblowers are influenced by the environment they are in. He also said one issue is that people report problems internally, and then the company starts to search for them for the purpose of retaliation.

The panelists talked at length about the concern of retaliation, and they said when companies are contacted about an investigation, the first thing they want to know is whether there is a whistleblower. Companies might try to find out who has raised concerns and complaints in the past to their supervisors or internal compliance.

One panelist said the number one factor that leads whistleblowers into their offices is the feeling that they were retaliated against after seeing something and saying something. One of the other panelists said he tells companies that they're the ones who create whistleblowers because most people are very loyal to their employers. They just want to work in an environment with integrity, and when they face retaliation or harassment, they end up blowing the whistle on something.

What corporations think about whistleblowers

The moderator asked Osnato what companies get wrong about whistleblowers, and he said the general thought at companies is a sense of betrayal by the whistleblower, no matter how sophisticated the company is. In that case, he advises clients that the facts are what they are, so they should investigate them.

He added that when defending a company against the government, they shouldn't attack the whistleblower directly because the government also has a vested interest in that person. Instead, he said the goal is to indirectly show gaps in their knowledge or to "indirectly and very gently" identify credibility issues with what the person said.

He said the government's concern is that a credible whistleblower comes to them, but they miss something and close the matter out. Osnato said usually whistleblower matters come with a kernel of truth, some kind of violation. He added that the government is usually very reluctant to walk away.

What whistleblowers should know

The panelists also emphasized that whistleblowers must realize that the issue isn't what they know or believe to be happening, but rather, what they can prove. One panelist said whistleblowers have to give the SEC at least one fish and say there's more fish if you keep going in this area.

The odds of a case being investigated or being successfully prosecuted are low if the whistleblower doesn't provide proof of what they are saying. They have to show the SEC where the bodies are buried, so to speak.

One panelist said some whistleblowers seem to believe that they have a lot more control from the beginning than they really do. Attorneys consider what makes a whistleblower complaint likely to be taken seriously.

Where improvements are needed

The moderator asked Osnato what improvements could be made in the law. Osnato said there must be some ways to provide enforcement staff greater conviction and confidence in closing matters without fear of looking like they missed something.

He said he would focus on fixes for the enforcement division. He drew attention to two Supreme Court decisions. One was in the Comcast case, and it said the court is limited to five years. The link decision said the SEC could get disgorgement, but they can't get it for legitimate business expenses.

He said each of those decisions cuts down significantly what the SEC can get. He said the agency can get most of its monetary sanctions, but then companies get away with illicit profits. He'd like to see Congress fix the issue.

Kelton said she wants to see improvements to the process by which whistleblowers are paid so that the payments are made faster. She said some whistleblowers have been waiting longer since application for an award than it took for the entire enforcement action.

Kelton adds that while the whistleblower office has picked up the pace by streamlining some processes, there should be some restructuring of the process. She said whistleblowers shouldn't wait longer for their award than it took for the entire enforcement action.

This article first appeared on ValueWalk Premium.