Sean McKessey, the Chief of the Office of the Whistleblower at the SEC, spoke at a panel discussion regarding the Foreign Corrupt Practices Act on Tuesday morning. Mr. McKessey commented on the efforts of his office to date and responded to questions regarding a number of issues.
This morning’s panel, organized by Sandpiper Partners LLC, was billed as an FCPA/Corruption Update. Panelists included, in addition to Mr. McKessey, Charles Duross (the Deputy Chief of the FCPA Unit of the Fraud Section at Justice), Cheryl Scarboro (formerly the head of the FCPA Unit in the SEC’s Division of Enforcement) and a distinguished group of private practitioners and in-house personnel. While Mr. McKessey’s comments were not limited to FCPA issues, much of what was discussed by the panel focused on FCPA enforcement.
As previously discussed here, the SEC adopted final rules to implement Section 922 of the Dodd-Frank Act regarding securities whistleblower incentives and protection by a narrow 3-2 margin. Although the SEC announced the new website for the Office of the Whistleblower seven weeks ago (discussed here), Mr. McKessey explained that he was appointed seven months ago and has been hard at work building the staff and infrastructure for the Whistleblower Office. His office is nearly fully staffed – he expects to hire a Deputy Chief in the near future.
Mr. McKessey explained that one of the initial steps taken by the Whistleblower Office was to publish a list of covered actions. That initial list (available here) was originally published on August 12 and will be updated, identifies each SEC action where a final judgment or order by itself or together with other prior judgments or orders in the same action issued before July 21, 2010 (i.e., prior to the passage of Dodd-Frank), results in sanctions exceeding $1 million. Mr. McKessey stated that potential whistleblowers have 90 days to submit a claim (and thus far the SEC has received a "handful" of claims). The goal is to address all of the pre-Dodd-Frank Act cases, so that in the future, the SEC can address claims under the Act by adding those post-Frank-Dodd Act cases to the "covered actions" web page.
In response to a question, Mr. McKessey explained that the tips from whistleblowers that his office received thus far ran the gamut in topic areas and were similar in number to the historical number of whistleblower complaints prior to the passage of the Dodd-Frank Act. Mr. Duross of the Justice Department’s Fraud Section said that while the quantity of tips had not increased, the quality of them had.
When asked if his office had developed a policy as to whether the SEC will approach a company after receiving a tip, Mr. McKessey explained that there was no "one-size-fits-all" approach. He elaborated that he did not want the whistleblower tip to be what drives the SEC’s investigations.
Mr. McKessey was asked about the issue that seemed to generate the most debate and discussion at the time of the adoption of the rules: the struggle to strike a balance between the importance of the corporation’s compliance programs and the incentive for the whistleblower to report directly to the SEC (and by-pass the corporation) (the vote of the Commissioners on this matter is discussed here). In defending the position ultimately adopted and implemented in the rules, Mr. McKessey explained that the rules provided a built-in incentive for whistleblowers to report to the company.
• The rules provide what Mr. McKessey called a "first:" the unique advantage that a whistleblower may report to the company first and still recover a whistleblower fee from the Government (although one of the other panelists, Joseph Warin of Gibson Dunn stated that in his experience, whistleblowers are now reporting simultaneously to the SEC and the company).
• The rules also provide that the SEC, in determining the range of an award for a whistleblower, may consider the amount of cooperation he or she provided to the company. Alternatively, if the whistleblower interferes with the company, his or her award may be lowered.
• In fact, as Mr. McKessey stressed, the whistleblower, by reporting to the company (and subsequently reporting to the SEC within 120 days), saves his or her "place in line" for a possible award based on the violations initially reported and any other violations discovered as a result of the investigation.
Mr. McKessey further argued that, by not having a reporting requirement, it will cause companies to strengthen their compliance programs, instead of waiting for a whistleblower to come to them.
One of the other issues discussed by the panel the impact of having a whistleblower involved in a trial. Mr. Duross explained that prosecutors bringing a case based on a whistleblower’s tip face a similar problem as with any other cooperating witness – the defense will argue about the witness’s motivation (a whistleblower is motivated by a chance for a profit, as opposed to most witness’s prospect of a jail sentence). The Government will need to "trust, but verify" the information from the witness and examine him or her accordingly. Mr. Duross pointed out that if a witness is convicted of a charge relating to the subject of his or her tip, he or she is precluded from recovering and award under the Dodd-Frank Act.
Mr. McKessey noted that, in contrast, a whistleblower found to be civilly culpable for a violation is not precluded from recovering an award (but his or her award may be reduced, as a result). Mr. McKessey said in those circumstances, the whistleblower may be like "Huggy Bear," the character from the "Starsky and Hutch" TV series who may not have always been "clean," but without whom the case could not be solved.