On January 18, 2013, the Securities and Exchange Commission’s (SEC) Office of Inspector General (OIG) released its report titled Evaluation of the SEC’s Whistleblower Program. The report presented a largely positive review of the SEC Office of the Whistleblower (OWB), and contained two recommendations to strengthen enforcement. (Our recent post discussing the functioning and results achieved by the OWP can be accessed here.) Notably, the OIG concluded that it would be premature to permit a private right of action – i.e., one where the whistleblower brings suit on behalf of the government and himself/herself based on the facts of the same case for which he/she submitted a complaint to the OWB.
Key Findings
Program Accessibility
OIG praised efforts to make the SEC’s program accessible to whistleblowers and noted:
OWB outreach efforts have been strong and the SEC’s whistleblower program can be promptly located using internet search engines such as Google, Yahoo, and Bing.
Award Levels
OIG found that “award levels are comparable to the award levels of other federal government whistleblower programs,” and recommended that the fee structure and levels remain in place.
Confidentiality
The report praised the program’s commitment to whistleblower protection. OIG found that Dodd-Frank FOIA exemptions for whistleblowers encouraged reporting and provided an additional layer of confidentiality without affecting “the public’s ability to access information regarding the SEC’s regulation and enforcement of federal securities law.”
Private Right of Action
One issue the OIG examined is whether:
it would be useful for Congress to consider empowering whistleblowers or other individuals, who have already attempted to pursue a case through the Commission, to have a private right of action to bring suit based on the facts of the same case, on behalf of the government and themselves . …
OIG stated that permitting a private right of action, while potentially beneficial down the road, would be premature at this time:
[W]e determined that the funding mechanism for the Investor Protection Fund established by Section 922 is adequate. However, we found at this time it is too premature to introduce a private right of action into the SEC’s whistleblower program because it has only been in place since August 2011. A fundamental change in approach would disrupt the system currently in place. Upon collecting additional data and assessing the effectiveness of the program after a reasonable amount of time has passed, OIG will be in a better position to opine on the usefulness of adding a private right of action to the SEC’s whistleblower program.
In line with that conclusion, the OIG referenced the views of “other federal government agencies with whistleblower programs”:
OIG solicited the views of other federal government agencies with whistleblower programs on the use of a private right of action in their programs. In general the respondents’ views were against a private right of action. Two respondents suggested private rights of action tend to weaken the government’s ability to shape and develop the law and may lead to wasteful, detrimental developments, such as pursuing a position that is inconsistent with executive and judicial interpretations. Another respondent suggested a private right of action for whistleblowers in the securities industry could lead to moral hazard. For example, an uninjured plaintiff, who would not have a standing without the whistleblower statute, could short a company’s stock and then sue the company for an alleged violation of the securities laws in the hopes the suit would harm the stock price.
Recommendations
OIG’s provided two recommendations pertaining performance metrics that would help OWB assess program success:
- Though OIG determined that program response to “Tips, Complaints, and Referrals system” submissions is generally prompt, OIG recommended that OWB introduce performance metrics to assess whether “the whistleblower program’s internal controls need to be strengthened.”
- OIG determined that OWB should “assess[] the key performance measures that are contained in their internal control plan and develop performance metrics where appropriate.”
Implications
The OIG appears to be pleased with the OWP’s efforts to promote and educate the public about the whistleblower bounty program, and also appears to be pleased with the results of the program — even though just one award has been issued. Query whether the OIG will recommend in the next few years that a private right of action with a qui tam framework should exist. Employers can breathe a sigh of relief for the time being. But, in the meantime, it is likely that the OWP will find the OIG reports encouraging and continue to pursue its agenda with vigor.