The SEC's New Whistleblower Program: What It Means for Companies and How to Respond. July 22, 2011

Transcription

1 The SEC's New Whistleblower Program: What It Means for Companies and How to Respond July 22, 2011

2 Agenda Introduction Presentation Questions and Answers (anonymous) Slides now available on front page of Securities Docket Wrap-up

3 Webcast Series Approximately every other week

4 Panel Scott Friestad, Associate Director, Enforcement Division U.S. Securities and Exchange Commission Bradley J. Bondi, Partner Cadwalader, Wickersham & Taft LLP Martin T. Biegelman, Director Navigant Consulting Paul S. Atkins, Partner Sphere Consulting

5 Cadwalader, Wickersham & Taft LLP New York London Charlotte Washington Beijing Houston Hong Kong Brussels The SEC s New Whistleblower Program: What It Means for Companies and How To Respond Presented by: Brad Bondi Cadwalader, Wickersham & Taft LLP and Martin Biegelman Navigant Consulting, Inc. NOT LEGAL ADVICE Cadwalader, Wickersham & Taft No Distribution Without Consent

6 Dodd-Frank Whistleblower Bounty Congress encourages individuals to report any suspected violation of the federal securities laws directly to the SEC (or commodities violations to the CFTC) by offering individuals between 10-30% of any recovery, where the SEC recovers over $1 million. Another step in government s continuing attempts to encourage cooperation. SEC and DOJ cooperation credit SEC cooperation initiatives (NPAs/DPAs) Cadwalader, Wickersham & Taft LLP 5

7 Impact of Dodd-Frank Whistleblower Rules Increased time pressure to evaluate and investigate potential wrongdoing. Increased threat of more and quicker derivative and shareholder class actions. Increased threat of employment-related suits by alleged whistleblowers. Increased importance of tailored compliance programs and prompt investigative responses. Cadwalader, Wickersham & Taft LLP 6

8 Preparing Today for Tomorrow s Whistleblower Complaint What can a company do to encourage internal reporting of potential violations of the federal securities laws? How should a company respond to an internal whistleblower? How should a company respond to an SEC investigation premised on a whistleblower complaint? How should a company treat a whistleblower? Cadwalader, Wickersham & Taft LLP 7

9 Legislative Basics Dodd-Frank adds Section 21F to the Securities Exchange Act. (Also adds Section 23 to the Commodity Exchange Act) Requires the SEC to adopt rules that reward: individuals (not entities) who voluntarily give the SEC original information about any violation of the federal securities laws that leads to a successful enforcement action of $1 million or more with 10-30% of the recovery. Cadwalader, Wickersham & Taft LLP 8

10 SEC Final Whistleblower Rules Internal Reporting Internal reporting not required Attempts to incentivize internal reporting Self-Reporting SEC makes clear the importance of internal investigations Cadwalader, Wickersham & Taft LLP 9

11 Who Can Be A Dodd-Frank Whistleblower? Most employees Vendors Clients / Customers Former employees Agents / Contractors Competitors Even Wrongdoers! Cadwalader, Wickersham & Taft LLP 10

12 Exclusions In most cases, the following individuals are excluded: Officers, directors, individuals with compliance or audit responsibilities. But there are significant exceptions. Attorneys and outside auditors. Law enforcement, PCAOB, and SRO employees. Cadwalader, Wickersham & Taft LLP 11

13 Requirements and Awards Original Information Submitted voluntarily Must lead to a successful enforcement action. Individual must submit information under penalty of perjury and must agree to cooperate. SEC has broad discretion to award bounties within 10-30% of recovery. Includes fines, disgorgement, and interest. Cadwalader, Wickersham & Taft LLP 12

14 Whistleblower Protections Whistleblowers have a federal private right of action for retaliation. Six year statute of limitations Double back pay Employees may continue to file discrimination claims pursuant to SOX 806, with added safeguards. Cadwalader, Wickersham & Taft LLP 13

15 Encouraging Internal Reporting Considerations for Compliance and Internal Reporting Mechanisms: (1) Tone at the top and throughout the organization; (2) Anonymous hotlines for employees, contractors, vendors, and clients; (3) Process and procedures for prioritizing tips and complaints, including, where appropriate, riskbased analysis; Cadwalader, Wickersham & Taft LLP 14

16 Encouraging Internal Reporting (4) Broadly communicate internal reporting process and anti-retaliation policies; (5) Publicize ethical lapses by employees and disciplinary consequences; (6) Embrace technology as part of the solution; (7) Independent internal audit function; (8) Active Audit Committee; Cadwalader, Wickersham & Taft LLP 15

17 Encouraging Internal Reporting (9) Tailored and effective training: Obligations and resources to report fraud internally; Realistic process and obligations of whistleblowers under the Dodd-Frank provisions. Discussion of incentives by SEC to reporting internally before going to the SEC. (10) Companies may want to consider providing additional incentives to report internally potential violations Cadwalader, Wickersham & Taft LLP 16

18 Responding to an Internal Whistleblower Prioritize tips/complaints as they are received. Take seriously all tips/complaints involving alleged violations of the law. Pre-identify potential outside counsel and engage as appropriate. If necessary: Investigate, Remediate, Self-Report Consider: Keeping the whistleblower informed of the process. Cadwalader, Wickersham & Taft LLP 17

19 Responding to an SEC Whistleblower SEC likely will welcome a credible, thorough internal investigation even after having received a whistleblower complaint. Consider carefully: Whether and to what extent to take steps to identify the unidentified whistleblower. Whether and to what extent to keep an identified SEC whistleblower informed of the investigation. Cadwalader, Wickersham & Taft LLP 18

20 Whistleblower Provisions: Key Points To Remember Almost anyone can be a whistleblower. That includes current and former employees, contractors, vendors, suppliers, and even wrongdoers. Applies for any violation of the federal securities laws (including FCPA, books & records/internal controls violations). Bounty is 10-30%, where the SEC recovers over $1 million with the SEC considering internal reporting as a factor. Company should encourage employees to report internally. Any internal complaints should be evaluated promptly based on risk characteristics. SEC still may allow companies to investigate themselves after the SEC receives a whistleblower complaint. Company must not retaliate against whistleblowers. Cadwalader, Wickersham & Taft LLP 19

21 Presenters Bradley J. Bondi, Partner Cadwalader, Wickersham & Taft LLP DC: +1 (202) NY: +1 (212) Brad Bondi is a partner with extensive experience representing companies and financial services firms in regulatory enforcement matters brought by the Securities and Exchange Commission and the Department of Justice. He has experience dealing with whistleblowers and counseling companies on relating compliance and investigative decisions. At the investigative stage, he designs and leads internal investigations for international companies in different regions of the world and on a variety of topics, including suspected violations of securities laws, accounting irregularities, internal controls, market manipulation, revenue recognition issues, tax-related matters, suspected violations of the FCPA, commercial bribery, and potential antitrust concerns. He also assists companies in ensuring appropriate reporting and remedial steps are taken to address any discovered problems. Prior to joining Cadwalader, he served on the executive staff of the Securities and Exchange Commission as enforcement counsel to two SEC commissioners. He also served as member of the steering committee for the SEC's "Strategic Plan for Fiscal Years " and on several working groups related to enforcement initiatives. Cadwalader, Wickersham & Taft LLP 20

22 Presenters Martin T. Biegelman, Director, Global Investigations and Compliance Navigant Consulting (602) ; Martin Biegelman is a director in Navigant s Global Investigations and Compliance Practice. He brings over 35 years of experience investigating and preventing fraud and corruption while in leadership roles in law enforcement, consulting and the corporate sector. His consulting practice focuses on the FCPA, UK Bribery Act and anti-bribery compliance, financial investigations, litigation consulting, due diligence and corporate compliance design and implementation. He has conducted and managed hundreds of complex and highrisk internal investigations in more than 70 countries. Prior to joining Navigant, he founded and lead Microsoft Corporation s Financial Integrity Unit, a highly acclaimed global fraud prevention and anti-corruption program. In 2009, he took a leave of absence from Microsoft to accept an appointment as Assistant Director and Deputy Chief Investigator with the Financial Crisis Inquiry Commission to investigate the root causes of causes of the financial crisis. Mr. Biegelman is both a Certified Fraud Examiner and a Certified Compliance and Ethics Professional. He is the author of books on the FCPA, corporate compliance and fraud prevention. He is also the Chair of the Board of Advisors for the Economic Crime Institute at Utica College. Cadwalader, Wickersham & Taft LLP 21

23 Scott Friestad Associate Director, Enforcement Division U.S. Securities and Exchange Commission Cadwalader, Wickersham & Taft LLP 22

24 Q&A Moderated by Paul S. Atkins Cadwalader, Wickersham & Taft LLP 23

25 Thank You For Attending This Webcast