The head of the SEC’s whistleblower office said she hopes that legislation pending in Congress will reverse the outcome of the Digital Realty case to encourage whistleblowers to report internally.
Jane A. Norberg, chief of the SEC’s Office of the Whistleblower, spoke about recent whistleblower developments at the Securities Docket 2019 Enforcement Forum. Joining Norberg in the discussion were private attorneys representing whistleblowers and companies. The panelists discussed some of the nuances involving the SEC’s whistleblower program, including trying to find out the identity of whistleblowers and the fallout from the Supreme Court’s Digital Realty Trust decision.
Current state of whistleblowers. Norberg touted the success of the SEC’s whistleblower program, stating that whistleblower tips have resulted in over $2 billion in sanctions against wrongdoers. In fiscal year 2019, the Commission awarded over $60 million to whistleblowers, including its third-highest award to date in which the whistleblower received $37 million. She added that in 2018, her office received over 5200 tips from every state in the U.S., as well as 72 other countries. While she did not reveal the numbers for 2019, she foreshadowed the Office of the Whistleblower’s upcoming report, expected to be issued in November, stating that the numbers should be similar to 2018.
Counsel perspective. Norberg was joined on the panel by private litigators, including Sean X. McKessy, former chief of the SEC’s whistleblower office who now represents whistleblowers at Phillips & Cohen. McKessy said that in his role as a whistleblower attorney, he acts as a gatekeeper by vetting potential whistleblowers. According to McKessy, he asks the same questions an attorney in the SEC’s Enforcement Division would ask.
Bridget Moore of Baker Botts chimed in with the point of view of defense attorneys. She noted that SEC staff will reach out to former employees of companies who are the target of a whistleblower claim before they reach out to the company. Because of this, the staff will have more information than the company itself, Moore explained. McKessy advised that this is necessary to protect the identity of the whistleblower.
Digital Realty fallout. The panelists also discussed the state of whistleblowers in the wake of the Supreme Court’s decision in Digital Realty Trust v. Somers (2018), where it unanimously held that whistleblowers who file suit under the Dodd-Frank Act’s anti-retaliation provision must report a securities law violation to the SEC and that it is not sufficient to report wrongdoing internally. Norberg said that the intention of the rules was to encourage internal reporting, contrary to the reasoning in Digital Realty. To "right the ship," legislation has been introduced in the House of Representatives to "fix" the outcome of Digital Realty, Norberg explained. Under this legislation, Norberg hopes that the whistleblower environment will go back to what it was before Digital Realty.
Practicalities of whistleblowing. Panel moderator Thomas A. Sporkin of Buckley LLP inquired how to balance judging a whistleblower’s credibility while still respecting their anonymity. Moore said that it is just human nature for company counsel to want to know who the whistleblower is. Counsel wants to sit down with the whistleblower to hear what they have to say. However, she added, companies do want to respect whistleblowers and are aware that they can be hit with a retaliation charge by the SEC.
McKessy likened wanting to find out the identity of a whistleblower to "kids in the sandlot." He explained that if a parent hears about an incident with a kid playing in the sandlot, the question shouldn’t be "Who told you?" but "What happened out there?" Trying to find out who the whistleblower is would be a misuse of resources, according to McKessy.
Sporkin also asked the panel how to approach a situation in which a potential whistleblower has taken privileged company documents to back up their claim. Moore said that she advises her clients to put these documents in a privilege log. Norberg added that the SEC cannot use privileged information and that whistleblowers that use privileged information cannot receive an award through the SEC’s whistleblower program.
A member of the audience asked how the SEC filters out false whistleblower tips. Norberg advised that fake tips are subject to perjury charges. She also noted that due to the SEC’s limited resources, if a tip is not original, timely, and credible, it won’t get past the Commission’s Office of Market Intelligence.
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