Guest Post from Proskauer’s Whistleblower Defense Blog
Written By Steven J. Pearlman and Rachel Fischer on November 5, 2014
According to an academic study published on October 6, 2014 by Andrew C. Hall, Gerald S. Martin, Nathan Y. Sharp, and Jaron H. Wilde, the presence of whistleblowers may have a meaningful impact on the outcomes of enforcement actions brought by the SEC and DOJ. The study involved an analysis of the effect of whistleblowers on enforcement actions for alleged financial misrepresentation, as measured by regulatory penalties (and criminal prison sentences). The study’s authors reviewed the outcomes of SEC and DOJ enforcement actions between 1978 and 2012 associated with alleged financial misrepresentation. According to the study, the involvement of whistleblowers in enforcement actions is associated with an average penalty of $90.16 to $92.88 million higher than when no whistleblower is involved. The study also found that whistleblower involvement is associated with executives and employees at firms being fined $50.22 to $56.50 million more than in actions without whistleblowers.
The study also provides a separate analysis of the 658 SOX enforcement actions that occurred between 2002 and 2012. In SOX cases, the marginal effect of whistleblowers increased average firm penalties by 171%, from $50.3 million to $136.6 million, and increased employee penalties by 215%, from $23.2 million to $73.2 million.
In addition, the study found that whistleblower involvement is associated with a 10-month increase (10.7%) in the duration of an enforcement action, which may be attributable to the increased workload required by regulators to investigate whistleblower complaints.
If the results of this study withstand scrutiny, they would provide even more reason for companies to step-up their compliance programs and address whistleblower concerns promptly. Also, it would be interesting to know how many of the whistleblowers at issue in the study lodged complaints internally before heading to government agencies and what the substance of such internal complaints included.