With approximately $1.2 billion paid to whistleblowers and nearly $5 billion in financial remedies collected, the Securities and Exchange Commission’s (SEC) whistleblower program is considered the gold standard by many.
But there are weak points, even the program’s biggest fans would agree.
One issue is how long it takes between the SEC ending an investigation and awarding a whistleblower, as the average wait time is four years. Another is that whistleblowers receive protection from retaliation only if they report their claim to the SEC or certain designated officials—and not if they report the issue to their supervisor at their employer.
Two senators seek to address both matters with the introduction of a new bill, the “SEC Whistleblower Reform Act of 2022,” on Thursday. Sens. Chuck Grassley (R-Iowa) and Elizabeth Warren (D-Mass.) propose to shorten the wait time for a whistleblower to receive a payout by requiring the SEC to issue an initial ruling on a claim within one year of the deadline to file the claim.
“While I’m pleased that the program has been an overwhelming success, we can still do more to strengthen protections, speed up claim processing, and close other loopholes,” Grassley said in a joint press release.
Added Stephen Kohn, chairman of the National Whistleblower Center and founding partner of whistleblower law firm Kohn, Kohn & Colapinto, “This law is urgently needed. Whistleblowers who have been fired often have to wait over four years for any compensation. This amendment closes that painful loophole.”
Jane Norberg, chief of the SEC’s Office of the Whistleblower from 2016-21, said while the idea of shortening payout times is laudable, the requirement to issue an initial disposition with respect to every award claim received within a year “is aspirational without a commensurate increase in funding and staff directly applicable to that office.”
The bill would also strengthen anti-retaliation protections by extending them to whistleblowers who report violations internally to supervisors and would clarify whistleblowers cannot waive their rights through a predispute arbitration agreement.
“The American people must have confidence that they can report violations of securities laws without retaliation from their employer,” stated Warren.
Siri Nelson, executive director of the National Whistleblower Center, said that corporate culture “drives a sense of loyalty which often causes whistleblowers to report internally first,” and that the bill “would help protect those whistleblowers and ensure that when whistleblowers do go to the SEC their claims are processed more quickly.”
She said that the arbitration agreements have a “chilling effect” on whistleblowers who fear having to go up against corporation council, and a provision in the bill would help dampen that effect.
Norberg, who is now a partner at law firm Arnold & Porter, said the retaliation provision would “increase the risk of SEC enforcement actions against companies for retaliating against a whistleblower.” Companies would need to recognize and implement appropriate policies for handling whistleblower tips.
“Because the bill defines a ‘whistleblower’ for retaliation purposes as someone who reports an issue to a supervisor, companies need to ensure their line supervisors recognize a tip when they receive it from their direct reports; know who to pass it on to so the company can triage and investigate; and importantly, understand what actions could be viewed as retaliatory,” she said. “This sounds intuitive, but many supervisors do not necessarily know, and they are not being trained appropriately or often enough. This training is important because that tip to the supervisor can set the stage for liability for the company via an SEC enforcement action or private right of action by the employee.”
With bipartisan support that is rare in today’s Congress, the bill’s co-signers include Sens. Catherine Cortez-Masto (D-Nev.), Susan Collins (R-Maine), and Raphael Warnock (D-Ga.).
The SEC declined to comment on the bill.