Do You Have Internal Whistleblower Procedures and Policies?

Friday, August 12, 2011 came and went. The world did not explode, the economy is still running, companies are still standing and life went on. The SEC officially opened the doors for its new Whistleblower Office. As far as we know, there was not a line of whistleblowers standing outside the office waiting to file complaints.

Surprisingly, the SEC disclosed that there are 20 pending whistleblower claims relating to cases which have already been settled. That is surprising. Complaints are being filed; lawyers are out there encouraging whistleblowers to come forward to seek the financial rewards. SEC officials have estimated that they expect approximately 30,000 complaints to be filed during the year, and that at least 1-2 per day is credible.

Companies need to be ready. One sure way to get into trouble is to do nothing. Whatever the state of a company’s anti-corruption compliance program, one of the priorities has to be a separate set of policies and procedures for handling whistleblower complaints. The critical rule governing the whistleblower program is the 120 day window after which the whistleblower can file the complaint with the SEC (with certain exceptions).

The goals of a whistleblower policy should be to:

— identify those complaints which could end up being filed in the SEC
— assess the seriousness of the complaint
— evaluate the likelihood the whistleblower will file with the SEC and the SEC’s likely response
— ensure prompt and responsive treatment of whistleblower complaint
— communicate with the complainant to assure him/her that the company is seriously reviewing the complaint

Some have optimistically deluded themselves into thinking that if they treat the whistleblower well, he or she will not run to the SEC. That is wishful thinking. When financial incentives are out there, you can bet the whistleblower and his/her attorney will run to the SEC whenever they can to seek financial rewards.

If the company devotes resources and time to this issue, it should be able to quickly divide those complaints into frivolous and credible complaints. Once that is done, the company needs to investigate the credible complaints as fast as possible to evaluate the merits.

For those that are credible and potentially serious, the company may need to voluntarily disclose the internal investigation to the SEC. This is an extremely risky proposition – once a company is on the SEC’s radar screen, life can get very difficult. For compliance officers and general counsels, this is a high stakes inquiry which can have serious consequences for the company. The 120-day window will define a period for rapid investigations and difficult decisions.

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