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Whistleblower Involved in Fraud Receives an Award from the SEC

The Message: Don’t Do the Crime Unless You Want to be Rewarded

I’ve blogged many times before about whistleblowing including whether it is an ethical action. Some would say that whistleblowing is a courageous act to right a wrong and because the whistleblower may be discriminated against for coming forward and/or suffer the penalty of being retaliated against for coming forward including demotion, change in responsibilities, or firing.

I’ve always believed that the Securities and Exchange Commission’s procedures that whistleblowers should follow to report wrongdoing are fair to the whistleblower, who puts his/her job on the line ostensibly to serve a greater good. I also supported Dodd-Frank requirements that created a financial award for whistleblowers who followed the procedures including providing original information unknown to the SEC, providing it voluntarily, reporting the matter internally and giving the company 120 days to correct the matter or reporting it right away when real harm is done to the public – i.e., investors or creditors.

Critics have claimed that the financial award, that is 10-30% of the total amount awarded to the SEC, in excess of $1 million, in a legal action against the company, creates a bounty-hunter system. In other words, might a would-be whistleblower gather evidence of possible wrongdoing and use it later to stake a claim if they feel mistreated or for revenge? SEC_whistleblower-768x512

Two weeks ago, I read about a whistleblower award that made me question the whole system. It seems the SEC has set common sense aside in awarding a whistleblower who played a role in the offending event and then, later on, blew the whistle.

On September 14, 2018, it was announced that the SEC reduced a whistleblower award to $1.5 million because the whistleblower was "culpable" and delayed reporting the misconduct for a year. The reason for the award, even though the whistleblower played a role and delayed reporting, was that the whistleblower provided "vital information and ongoing assistance that proved important to the overall success of an enforcement action." But the SEC said the whistleblower delayed his or her report "and benefited financially during the delay."

The reduced award underscored "the need for individuals to come forward without delay," according to Jane Norberg, chief of the SEC’s Office of the Whistleblower. The SEC said the whistleblower was "culpable" and only reported after learning of the SEC's ongoing investigation. During the delay "investors were being harmed," the SEC said. The SEC didn't say how much the whistleblower award could have been. However, $1.5 million is no shabby amount for a person who had a role in a crime, covered it up, and reported it at their convenience.

This a strange to me. What message does it send? The way I see it, a would-be whistleblower can be part of a financial fraud scheme, say nothing while involved in the crime, and then decide to blow the whistle for some reason. Maybe they get a guilty conscience or maybe they realize the house of cards is about to collapse. A person should not financially benefit from blowing the whistle if they had any part in the scheme whatsoever. Otherwise, the SEC is awarding bad behavior, as occurred in this case.

Finally, ethics is not like a faucet you can turn on or off at a whim. It involves consistent action to do the right thing, at the right time, and for the right reason, which didn’t occur in this case.

The rules for qualifying for a whistleblower award need to be changed. This shouldn’t happen again. The SEC is supposed to protect the public interest. If a year goes by during which time the whistleblower says nothing, that does real harm to the public and should not be rewarded.

Blog posted by Steven Mintz, aka Ethics Sage, on September 27, 2018. Visit Steve’s website and sign up for his newsletter. Follow him on Facebook and Like his page.