Reuters: Money: Comply: Getting a grip on whistleblowers

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Comply: Getting a grip on whistleblowers Mar 23rd 2012, 20:03 By Suzanne Barlyn Fri Mar 23, 2012 4:03pm EDT (Reuters) - Cash rewards for whistleblowers at financial firms can motivate employees to do what companies fear most: report company wrongdoing to regulators. As interest in the U.S. Securities and Exchange Commission's whistleblower compensation program gains traction among the rank and file, securities firms are trying to figure out how to encourage employees to report problems to them first, before going to regulators. The success of such efforts could help firms avoid disruptive investigations and publicly damaging enforcement actions, because they could work quickly internally to resolve issues before they get out of hand. They could also self-report a problem to the SEC, which could help lessen potential sanctions against the company. SEC officials are championing the agency's whistleblower program, which took effect in August. While some tips may come from people outside the firm, the program is also intended for those who complain internally and find no relief. They can now voice their concerns to a higher authority. But the SEC's program, required by the Dodd-Frank financial reform law, is at odds with what financial firms prefer. They want to keep those initial complaints in-house. Many firms worry that the SEC's program could undermine extensive compliance mechanisms and anonymous reporting procedures they already have in place. Fostering a culture that promotes reviews of employee concerns about wrongdoing is difficult, they say, if they repeatedly tell someone else first. While the SEC's program includes financial incentives for whistleblowers who complain to their company first, some financial firms say the agency's efforts to broaden awareness increases the risk that employees reporting problems may tell the agency first simply to cash in on a reward. Employees who sound false alarms to regulators can also trigger significant expenses of their companies' money and time, said Richard Marshall, a lawyer for Ropes & Gray LLP in New York. Reviewing a problem first through a firm's compliance system can reveal if it is legitimate, he said. The SEC program is "now producing high-quality leads and shortening the length of some of our investigations," SEC Chairman Mary Schapiro recently told journalists at a conference. It receives an average of seven tips daily through the program, another official told a group of investment advisers at a conference earlier this month. The SEC has yet to pay an award - which can be $100,000 or more - through its new program. That is because an investigation and other steps must occur before the tip is eligible for a cash reward. For example, the investigation must lead to a completed regulatory action. There must also be a 90-day public notice period so that potential claimants can apply for the award, an SEC spokesman said. COMPANY LOYALTY SEC whistleblower rules do offer some incentives for reporting problems internally first, including potentially larger awards. Whistleblowers whose tips meet SEC criteria are generally eligible for between 10 and 30 percent of sanctions the SEC collects that exceed $1 million. Those who report to their companies first stand a better chance of receiving a payment at the higher end of that range. Companies cannot forbid employees from alerting the SEC to a problem, but they can suggest telling the firm first, Marshall said. Firms can motivate employees to go in-house first by promoting their own whistleblower programs, said Rosa Licea-Mailloux, associate general counsel for NGAM Distribution LP, the distribution arm of Natixis Global Access Management. "Writing the policy is the easy part," she said. The challenge is making sure people understand what it means, said Licea-Mailloux, who made the remarks in Arlington, Virginia, at a recent conference hosted by the Investment Adviser Association. The compliance department at NGAM Distribution drives home that message by emailing the whistleblower policy to all employees, according to Licea-Mailloux. The company's chief executive and general counsel then discuss it again during four annual employee town-hall meetings, where they also instruct employees to report concerns to their managers, or to the general counsel. Employees who do not want to tell their managers or the general counsel can report issues anonymously using confidential telephone and online reporting systems. Despite the efforts, some corporate whistleblower policies may still have to overcome a key problem: former employees who say their concerns were dismissed or led to retaliation. Retaliation, which includes everything from defaming the whistleblower to moving his or her job to another location, is common when employees complain about possible wrongdoing, said Rebecca Katz, a New York lawyer who is representing seven whistleblowers before the SEC. All went to their companies first, she said. There is a simple way to encourage internal reporting, said Katz. "You don't even need to give them money. You need to treat them with respect," Katz said. (Reporting By Suzanne Barlyn in New York; Editing by Jennifer Merritt and Matthew Lewis) Link this Share this Digg this Email Reprints

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