Whistleblower Complaint Protocols
To give you an idea of the impact of the SEC’s Whistleblower program, my good friend former federal judge Stanley Sporkin spent an entire day with senior management of a large global company to discuss the implications of the new program for the business’ global operations. To put it mildly, the SEC’s whistleblower program creates significant risks for companies.
Perhaps the most difficult area for companies is when and if to make a pre-emptive voluntary disclosure to the SEC and/or the Justice Department. As everyone knows, with certain exceptions, whistleblowers have to wait 120 days after internally filing a complaint before they can report the matter to the SEC. The company has to determine how to respond to the complaint before the 120-day period expires.
Companies have to design and implement an effective protocol for assessing the complaints and assessing which complaints require a preliminary investigation. Assuming that such an investigation can be completed within a short period of time, the company then has to decide how to respond. At the same time, the company has to establish a relationship with the whistleblower to let them know that their complaint is being reviewed and that the company takes the matter seriously.
Many of the whistleblower complaints will be frivolous. Some will raise serious issues and must be handled carefully. It will be a challenge to distinguish between the complaints. With time and experience, however, a company should be able to sort through the complaints. Of course, the company will have to dedicate personnel and resources to creating a triage system.
The second critical stage will be conducting a preliminary inquiry. There is a real skill to gathering relevant facts to a potential claim. Documents will have to be gathered and reviewed and interviews conducted. A nimble investigative team will be critical. Assuming that such an investigation is conducted, then the real question comes down to whether or not to preempt the whistleblower and disclose the matter to the SEC. If a serious allegation is raised, that decision will be easy. But there are certain issues which will fall close to the line and a careful assessment will be important and could have significant implications for the company.
It will be interesting to see how this all plays out. A whistleblower cottage industry is already growing on the internet as lawyers market their ability to win financial awards for whistleblowers. The SEC has its work cut out for it and companies definitely need to prepare and do so quickly.