Last month, Steven Peikin, the co-director of the U.S. Securities and Exchange Commission's Division of Enforcement, announced that the SEC staff has triaged more than 4,000 whistleblower tips from mid-March to mid-May. For fiscal year 2019, the SEC received a total of 5,212 tips. Why the surge in tips during a time where employees are isolated working remotely and have limited view of what others are doing?
There are several plausible reasons for this dramatic increase:
- With the surge in layoffs and furloughs due to the pandemic, employees may be venting their frustrations by disclosing misconduct they had previously witnessed but held back from reporting for fear of job repercussions.
- Employees may be attempting to become a protected entity under the Whistleblower Protection Act, thereby making it more difficult to be terminated.
- The world’s continuing economic turmoil has raised the stress levels of many. With tension rising and the extreme swings in the markets, there is more opportunity for abuse through insider trading.
- Senior management and/or accounting personnel may be incentivized to perform accounting improprieties and generate false or inaccurate disclosures to hide company losses.
- Tipsters might believe that remote working conditions will allow them to report misconduct with less concern of being discovered.
- The SEC has made and publicized several large awards to whistleblowers in 2020, including a payment announced on July 22 of $109.4 million plus interest to a former Novartis AG sales representative after the company agreed to resolve a lawsuit accusing it of paying kickbacks to thousands of doctors who prescribed its drugs. Some whistleblowers could be hoping for a big payday.
Despite the COVID-19 pandemic, the SEC has reported opening hundreds of new enforcement investigations since mid-March 2020, some but not all of which relate to COVID-19 matters.
In the current environment, companies must take extreme precautions to prevent misconduct and respond appropriately to whistleblower reports. The SEC and DOJ will be aggressively pursuing these cases; therefore, companies should be focused on prevention. Companies should consider employing the following strategies to mitigate whistleblower-related risks.
- Address the issue promptly: Whistleblowers need to know they are being heard. Establish a process where a dialogue is maintained with the whistleblower, without the risk of them losing their anonymity.
- Have the proper distribution system in place for complaints: All complaints are not equal and need to be addressed by the proper personnel. For example, an accusation regarding an accounting impropriety should not go to human resources, rather it should go to the head of the Audit Committee or General Counsel. Establishing the proper protocol for complaints can ensure that all are addressed through the appropriate channels.
- Exit interviews: All employees being laid off or furloughed should have an exit interview with human resources to allow them to vocalize and share any concerns.
- Review policies and procedures: Policies and procedures should be revisited to meet the changing needs of a remote workforce. Evaluating how a company’s risks might have changed and making changes accordingly is imperative.
Whistleblower tips and complaints will continue to rise in this climate. Companies should consider delivering a message to all employees about their policies and procedures, stating that all complaints will be addressed in a serious manner with no retaliation against any individuals. Citrin Cooperman’s Forensic and Litigation Services Practice can assist with the review of your company’s current procedures and provide remediation steps to enhance your process moving forward in these challenging times.