SEC WHISTLEBLOWER RULES UNDER DODD- FRANK. Presented by: Michael A. Saslaw September 12, 2013 Matthew J. Jacobs David R. Woodcock Barefoot Bankhead

Transcription

1 SEC WHISTLEBLOWER RULES UNDER DODD- FRANK Presented by: Michael A. Saslaw September 12, 2013 Matthew J. Jacobs David R. Woodcock Barefoot Bankhead

2 DODD-FRANK OVERVIEW Response to financial crisis of late-2000s. Most significant financial reform since Great Depression. Whistleblower program a key provision of Dodd- Frank. Whistleblower rules effective August 2011, but apply retroactively to tips received by SEC since July 21, 2010 (date that Dodd-Frank was enacted). 2

3 OVERVIEW OF WHISTLEBLOWER REGULATIONS Bounty: Requires payment of a bounty of 10-30% of collected sanctions to a whistleblower who voluntarily provides the SEC with original information that leads to the successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1 million. Retaliation: Establishes a private cause of action for retaliation against a whistleblower. 3

4 WHO MAY BE A WHISTLEBLOWER One or more Natural Persons, except generally: Auditors & compliance professionals involved in relevant legal, audit & compliance functions, subject to certain exceptions; Lawyers; Persons who obtain information only from a person in whose hands the information is deemed not original ; Persons convicted of criminal violations relating to the reported misconduct; and Foreign government officials and certain U.S. government officials. 4

5 WHAT CONSTITUTES A REPORTABLE VIOLATION Possible violations of: federal securities laws; the rules of a self-regulatory organization; or the Foreign Corrupt Practices Act. 5

6 WHAT TYPE OF INFORMATION Original Information: derived from the whistleblower s independent knowledge or independent analysis; not already known to the SEC from any other source; not exclusively derived from an allegation made in a judicial or administrative hearing; in a governmental report, hearing, audit; or investigation; or from the news media, unless the whistleblower is a source of the information. 6

7 INFORMATION VOLUNTARILY PROVIDED Provided before a request, inquiry or demand is directed to the whistleblower or his representative by a federal or state authority or SRO with securities enforcement authority; AND Provided by a person not required to report the information to the SEC (by legal duty, agreement or court order) 7

8 INCENTIVES TO REPORT INTERNALLY Whistleblower receives credit for reporting as of the date of the whistleblower s internal report, as long as the whistleblower provides the information to the agency within 120 days. Whistleblower receives credit for all of the information that the entity gathers in response to the whistleblower s report and later submits to the agency, even if the information the whistleblower originally reported was not sufficiently credible or specific on its own. Potential increase in award amount paid to whistleblower. 8

9 AMOUNT OF AWARD Between 10 and 30 percent of total sanctions collected in an action brought by the agency where total sanctions imposed exceed $1 million. Related actions may be aggregated to reach the $1 million threshold. 9

10 FACTORS THAT COULD INCREASE AWARD Significance of the information. Assistance provided by the whistleblower (including whether he or she reported internally). Whistleblower s participation in internal compliance systems. Law enforcement interest. 10

11 FACTORS THAT COULD DECREASE AWARD Culpability in misconduct. Unreasonable delay in reporting. Interfering with internal reporting and compliance systems. 11

12 NON-RETALIATION PROVISIONS Information may be submitted anonymously through an attorney. Whistleblower s identity must be kept confidential by the SEC unless and until required to be disclosed to a defendant or respondent in a government proceeding. Whistleblower can bring private cause of action against employer for retaliation in response to whistleblowing activities (statute of limitations is generally six years from date of alleged retaliation, but can extend up to ten years). The SEC also can bring an enforcement action against employer for retaliation 12

13 CORPORATE COMPLIANCE ISSUES RELATED TO THE WHISTLEBLOWER RULES Encourage whistleblowers to report internally. Complete internal investigations expeditiously, preferably within 120 days. Protect whistleblowers from actions that could be deemed retaliatory. 13

14 ENCOURAGE WHISTLEBLOWERS TO REPORT INTERNALLY Develop and implement a thorough training program to inform employees how to identify possible violations and how to report them: What constitutes a violation; How violations should be reported; How supervisors should respond to complaints; and What actions could be considered as retaliatory. 14

15 ENCOURAGE WHISTLEBLOWERS TO REPORT INTERNALLY (cont d.) Integrate reporting of possible violations into existing employee programs: Include compliance program training in new employee orientation programs; Provide refresher training at regular intervals as part of larger employee training procedures; Remind employees at regular intervals of confidential reporting procedures; Include questions about knowledge of possible violations in exit interviews. 15

16 ENCOURAGE WHISTLEBLOWERS TO REPORT INTERNALLY (cont d.) Take care to insure that there is no implication that an employee s compensation or job assignment or a departing employee s severance pay or other benefits related to separation will be affected by reporting possible violations. Tone from the top is important. The CEO and other top management personnel should routinely deliver the message that reporting of illegal and unethical behavior is encouraged and valued. Conduct anonymous employee surveys to gauge whether the message is being delivered effectively. Top management should publicly commend employees who report violations. 16

17 But DON T OVERSTEP A corporate policy requiring employees to report internally before reporting to US regulator may be problematic. (A regulatory requirement to that effect was expressly rejected by the SEC during rulemaking). The SEC is likely to take a dim view of any requirement that the employee disclose to the company information the employee has shared with regulators. Enforcing or threatening to enforce a confidentiality agreement to impede a whistleblower communicating with the SEC might be a violation of Rule 21F-17(a). 17

18 COMPLETE INTERNAL INVESTIGATIONS EXPEDITIOUSLY The 120-day look back encourages a whistleblower who makes an internal report to disclose the same information to the SEC within 120 days. A company that wishes to preserve the option to selfreport to the SEC needs to investigate quickly. 18

19 AVOID ANTI-RETALIATION ISSUES Experienced counsel should weigh in regarding any potentially adverse changes in employment status for a whistleblower. Human resources procedures should include careful documentation of adverse employment actions involving whistleblowers and retention of records for the longer statutory limitation periods applicable to retaliation claim. 19

20 EARLY RESULTS OF WHISTLEBLOWER PROGRAM In the fiscal year ended 9/30/12, the SEC received approximately 3,000 tips. The first award to a whistleblower of approximately $50,000 was announced in August The second awards, to three individuals, were announced in June They will receive 5% of the amount actually collected from the $7.5 million in sanctions imposed. They may also apply to share in a $800,000 award in a related DOJ action. 20

21 SEC Hot Topics Institute Internal Investigations Leading Practices W. Barefoot Bankhead Partner, Deloitte Financial Advisory Services LLP September 12, 2013

24 Identify Tone at the top Code of Conduct Training and Education Intake Mechanisms Hotline Website ,/voic / instant message/other electronic mechanisms PO Box Compliance/Legal HR Security Internal Audit Annual certification Focus groups/surveys Exit interviews Copyright 2013 Deloitte Development LLC. All rights reserved.

25 Prioritize Case management taxonomy Determine credibility and seriousness of allegation Determine privilege Reporting to the appropriate party Audit committee or highest governing body for allegations that involve senior management or put company at risk (reputation or financial) Legal/Compliance for material allegations Normal reporting channels for less serious allegations Copyright 2013 Deloitte Development LLC. All rights reserved.

26 Investigate Geographical considerations Location of people, documents and data Parent company s control over foreign operations Foreign laws and regulations impacting investigations U.S. laws that apply in foreign jurisdictions Language considerations Identify investigation leader General counsel, BOD member, Audit Committee, Special BOD Committee may direct outside counsel conducting investigation for allegations that involve senior management or put company at risk Legal/Compliance may direct outside counsel for material allegations Leader of business unit may direct investigation of less serious allegations using internal and/or external resources Copyright 2013 Deloitte Development LLC. All rights reserved.

27 Investigate (continued) Identify investigation team Outside counsel Internal and/or external investigators (e.g., forensic accountants, computer forensics, business intelligence) Internal audit Compliance IT support Electronic discovery support External auditor to monitor Determine scope Relevant time frame Who involved Location or sources of evidence Evidence preservation Copyright 2013 Deloitte Development LLC. All rights reserved.

28 Investigate (continued) Investigation plan Summary of allegation being investigated Chronology of the current facts known Identification of interested parties (e.g., regulator, law enforcement, opposing attorney) Sources of potential information and their location Technology considerations (e.g., s or other evidence that might identify unknown parties/individuals of interest) Initial list of key individuals and information custodians Communication plan for reporting status of investigation Final report Information gathering Types of information Sources of information Index information gathered Evidence chain of custody Copyright 2013 Deloitte Development LLC. All rights reserved.

29 Investigate (continued) Information review Written protocol with instructions to tag documents (e.g., privileged, hot document, needs further review) Tags for individuals to be interviewed Include relevant documents in electronic file/database to facilitate sorting and summarizing Key individual interviews Thoughtfully prepared outline Upjohn warning Potential Weingarten considerations Two interviewers where feasible, one for questions, one for note taking Do not interview subject of the investigation prematurely Preferable to get signed statements from interviewees Copyright 2013 Deloitte Development LLC. All rights reserved.

30 Resolve Final report Oral or written, depending upon circumstances Report should include: o Identification of events leading up to investigation o Detail of investigation procedures o Summary of factual findings o Recommended potential remediation Remediation Disciplinary action Internal control improvement Restitution Disclosure Copyright 2013 Deloitte Development LLC. All rights reserved.

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