PART TWO: SEC and Employment Law Protect and Compensate Whistleblowers
Protection Against Retaliation
This rule sets out to prohibit retaliation and prevent interference with a whistleblower's report, as well as by intimidating to impose a confidentiality agreement. It’s important for whistle blowers to know that these rules still apply even if no compensation is awarded to the whistleblower. The SEC has noted that these protections to not exempt the whistleblower from ethic responsibility. If a whistleblower is found to break company or legal policy the anti-retaliation protection will not apply. The SEC also commented that the anti-retaliation protection is designed to strike the "appropriate balance between encouraging individuals to provide us with high-quality tips without fear of retaliation, on the one hand, while not encouraging bad faith or frivolous reports, or permitting abuse of the anti-retaliation protections, on the other." Specifically, "[t]he 'reasonable belief' standard requires that the employee hold a subjectively genuine belief that the information demonstrates a possible violation, and that this belief is one that a similarly situated employee might reasonably possess."
Related Change at the SEC: The Cooperation Initiative
"The Cooperation Initiative," was presented earlier this year by the SEC as a departure from prior SEC practice in three ways:
- Individuals are now presented credit for cooperation. Credit is offered to individuals based on a a fairly simple list of factors: "the timeliness of the individual's cooperation, including whether the individual was first to report the misconduct to the Commission or to offer his or her cooperation in the Investigation, and whether the cooperation was provided before he or she had any knowledge of a pending investigation or related action."
- The 2010 Enforcement Manual does not override the Seaboard Report, but it does list factors signifying an entity has cooperated. Removed is a long list of factors, which some practitioners read as suggesting that cooperation would never be rewarded when the underlying conduct was serious or when some procedural step was skipped. Among the factors considered in assessing an entity's cooperation is "self-reporting of misconduct when it is discovered, including conducting a thorough review of the nature, extent, origins and consequences of the misconduct, and promptly, completely and effectively disclosing the misconduct to the public, to regulatory agencies, and to self-regulatory organizations."
- January 13, 2010 Enforcement Manual offers a list of rewards available for cooperation. Many of these tools have never been available before; others have been used so infrequently they were considered of limited utility.
These new tools used to compensate companies for their cooperation have only been used twice since the their announcement earlier this year. First was Carter's, Inc; involved the SEC entering into a Non-Prosecution Agreement ("NPA"), related to its restatement of financials in late 2009. In the fall of 2009, Carter's discovered issues with its accounting for sales paid to wholesale customers. The company's audit committee hired a private securities law firm to conduct an internal investigation, and upon learning of issues, the company made a timely and thorough report of the matters to the SEC ahead of any public announcement and the eventual restatement of financials. The SEC rewarded the self report and follow-on extensive cooperation in the SEC's investigation by agreeing in the NPA to refrain from bringing any enforcement action against the company, though the SEC sued a former Carter's EVP for fraud related to the restatement. In the second case, the SEC entered a Deferred Prosecution Agreement ("DPA") with Tenaris related to alleged FCPA violations. Tenaris conducted a worldwide internal evaluation of FCPA matters and found that bribes had been paid in Uzbekistan. The company self reported the violations and cooperated with the SEC and DOJ in their investigations. Under the DPA, the SEC agreed not to file an enforcement action against the company in return for the company agreeing to certain actions related to future due diligence, training and compliance activities, as well as paying almost $10 million to the SEC and DOJ for disgorgement of profits and fines.
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