The time period that an internal whistleblower must wait
before he or she can bring information to the Securities and Exchange
Commission (SEC), under the Dodd-Frank Whistleblower provision, within 120 days
after the information has been internally reported to the company. Is your
company ready for the speed in which an internal investigation must now be
completed? It is not simply that an investigation has begun, which might
somehow act to stay or provide a company a safe harbor. The investigation must
be completed and a decision made on whether or not to report the results, if a
violation of the Foreign Corrupt Practices Act (FCPA) is found, to the SEC. Not
a decision ever to be taken lightly.
I have not been one of the corporate doomsayers in
regards to the Dodd-Frank Whistleblower provisions. I generally believe that
most employees do not want to report to the SEC or that they will run to the
SEC to claim some far off chance at a bounty. I feel that most people take
pride in their company and want it to succeed. (Of course if you fire an
internal whistle-blower for blowing the whistle and then claim they were
incompetent all along, well hell hath no fury like...) However, I may have to
modify some of these views after reading an article in the Wednesday edition of
the Wall Street Journal, entitled "Secret
Informant Surfaces in BNY Currency Probe" by Carrick Mollenkamp.
In this article, Mollenkamp reported on informant Grant
Wilson who, while working at Bank of New York Mellon Corp., (BNY), gathered
information against his employer and provided documents to a whistleblower
legal group, who then filed whistle-blower lawsuits against BNY.
These lawsuits were later taken over or were used as the basis for other
lawsuits filed by several states Attorneys General. Wilson's input "culminated
with the filing last week of separate civil lawsuits by the Justice Department
in federal court..."
However, Wilson was no ordinary whistleblower. He was
specifically recruited to be the insider and to provide such information by one
Harry Markopolos, who was himself scorned by the SEC multiple times regarding
his attempts to blow the whistle on Bernie Madoff to the SEC. (Think the SEC
will not take him seriously the next time?) While the facts and
circumstances of the various claims against BNY are very different from FCPA
compliance, it does present a new twist on whistleblowing, that a person can be
recruited in order to bring a civil claim. The Department of Justice (DOJ) has
used confidential informants in white collar cases for some time.
However, Markopolos worked on the BNY case for several
years and recruited Wilson 2 years before this last round of lawsuits
were filed. The original lawsuits did not name Wilson as the whistleblower or
'Relator' in legal parlance. They were filed under the name of a Delaware
partnership named "FX Analytics" to "provide anonymity for Wilson". Further,
the lawsuits were sealed. All total, the suits seek $2bn in from the bank and
the whistleblower group can seek a share "of as much as 25% of the recovery".
The old example of a whistleblower was generally thought
to be of a disgruntled employee who had inside information or an employee who
brought information to management and was terminated for their efforts. The BNY
case provides a concrete example of a new type of whistleblower. Here you had
an effort, for literally years, with recruitment of an employee with intimate
knowledge of a company's operations to provide 'insider-information'. Could
such an example be brought to other types of whistleblower actions and reports?
So does the BNY matter relate to Dodd-Frank
Whistleblowers? It may be that such private efforts come from the civil side of
the Bar, rather than direct reports to the DOJ. If your company does not
perform an investigation within 120 days or more importantly, if the company
does not report to the SEC within 120 days and the whistleblower does, the
whistleblower can receive retroactive credit back to the original date of
internal reporting. This may well be something of monetary value to a
whistleblower's group like the one which filed the lawsuit against BNY. Also,
and more ominously suggested by the BNY matter, an aggressive plaintiff's lawyer
could claim that such failure get the investigation completed might be an
indication of lost evidence, spoliation or simply that the company had a lack
of commitment to compliance that it could not or would not dedicate the
resources necessary to comply with the FCPA. The failure to report might be
further evidence of nefarious intent.
So what can a company do in response? The first thing
might be to determine 120 days from each internal whistleblower complaint that
comes in and diary that date. The Compliance Department or Legal Department
needs to respond very, very quickly to any allegations. In an article by Paul
Koepp, entitled "Whistle-Blower Cases May Jump with New SEC Rules BIG
Bounties", he interviewed Russ
Berland and Brian O'Bleness,
of the law firm of Stinson Morrison Hecker
LLP which has set up a Whistle-Blower Investigation and Response Team.
Their response team is designed to bring in outside professional resources, to
supplement those a company might (or might not) have available in-house, to
meet these time sensitive deadlines under Dodd-Frank. This is a step beyond
what Jim McGrath writes about regarding the need to bring specialized
investigative counsel in to handle a matter. Your company needs specialized
counsel and a response team ready to go. Stinson Morrison's creation of such a
team may well fill that need.
Visit the FCPA Compliance and Ethics Blog,
hosted by Thomas Fox, for more commentary on FCPA compliance, indemnities and
other forms of risk management for a worldwide energy practice, tax issues
faced by multi-national US companies, insurance coverage issues and protection
of trade secrets.
This publication contains general information
only and is based on the experiences and research of the author. The author is
not, by means of this publication, rendering business, legal advice, or other
professional advice or services. This publication is not a substitute for such
legal advice or services, nor should it be used as a basis for any decision or
action that may affect your business. Before making any decision or taking any
action that may affect your business, you should consult a qualified legal
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© Thomas R. Fox, 2011
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