“Sherron, even if it’s the last $10,000 you have, you have to use it to hire an attorney. If what you are telling me is correct, people will be going to prison. If you show up without an attorney, you will be crucified. They will lie about you, fabricate evidence, turn the tables on you, you MUST have an attorney by your side.”
These words truly alarmed and scared me; I was already on shaky ground after the 9/11 attacks on top of my personal situation at the Enron Corporation where I worked. I had reported accounting fraud to Enron’s CEO, Ken Lay, back in August of 2001 and confidently (and naively) expected to see a crisis management team spin into action to address the certain peril facing a large publicly traded company that had manipulated its financial statements. Instead, I’d witnessed mainly three things: first, political jockeying by those wanting to be the next CFO, COO or CEO of Enron, secondly, a wall of silence about the accounting issues I’d raised, and lastly, pariah treatment of me from all sides. I’d been moved from the executive floor on the 49th floor down to the HR offices on the 16th floor. I’d been given no real work to do; in fact, the job positions offered to me were both beneath my position and skills and nearly always put me in a direct reporting position to a person closely related to or involved with the suspect accounting transactions. The attacks of 9/11 had made everyone uneasy; stock markets were back open, but jitteriness prevailed across the country, layered on top of all that anger, shock and grief.
When I met with Enron’s CEO, Ken Lay, to discuss what I considered to be very problematic accounting in four special purpose vehicles called the Raptors, I did so because I believed a window of opportunity had opened to deliver such horrible news and have it heard and accepted. Why? Because Jeff Skilling, who had been our COO since early 1997 and was promoted to CEO in early 2001, had abruptly resigned. Could this accounting fraud be the reason? Who really knows, but certainly, it gave me hope that Ken Lay, who was Chairman and was stepping back in as CEO, might just investigate and work to right the ship.
I had thought out two likely scenarios in my mind: in the first one, the company kicked the can down the road, “investigating” the Raptors and slow walking the plan to address the fraud until it was impossible to ignore; or two, quickly recognize the fraud for what it was, make plans to write off the Raptor structures as prior year restatements (a hugely negative and big deal to investors and Wall Street), form a crisis management team, hoard cash, estimate litigation costs for U.S. Securities and Exchange Commission (SEC) fines and shareholder lawsuits, and get the PR crisis folks working overtime on explaining this mess to employees and shareholders.
I never expected the action steps Ken Lay decided to take. First, he looked into dumping me on the street, to fire me, and likely embark on a plan of attack I’ve since learned about from other whistleblowers – smear the messenger as a disgruntled former employee and a nutcase. Secondly, Enron decided to write off the Raptor structures and call this massive $544 million expense “an early termination during the third quarter of certain structured finance arrangements with a previously disclosed entity,” and describing the write off in the subsequent earnings phone call as “a non-recurring, non-cash write off of a previously disclosed related party transaction.” Basically, everyone in the investing world said, Huh? What?
This last action, the current period write off of the Raptor accounting structures, had been announced in Enron’s quarterly earnings statement made on Tuesday, October 16, 2001. Enron’s stock was trading around $33 per share that day. On Wednesday, Thursday and Friday, The Wall Street Journal printed front page exposé articles on Enron and the company’s questionable related party transactions. By Friday, October 19, 2001, the SEC had announced an informal inquiry into Enron and the stock closed at $29 per share.
The questions and suspicions from all fronts were scarcely addressed by Enron, which held only a handful of employee and investor phone calls before going radio silent. It didn’t take long for the markets, particularly the liquidity providers, to get nervous. Enron’s credit lines dried up and the “run on the bank” was on. By late November, Enron had lost its investment grade rating and the stock price was trading in cents, not dollars. These events triggered an immediate maturity on large amounts of Enron’s long term debt and sealed the company’s fate. Bankruptcy was declared on December 1, 2001.
Enron’s rapid collapse spawned over a dozen shareholder lawsuits and about the same number of Congressional investigations. Additionally, the Department of Justice and the FBI had joined with the SEC and were investigating not just civil securities law violations, but criminal wrongdoing at Enron. The few close friends of mine who knew my story continued to encourage me to hire an attorney. Finding one that believed me and was willing to take on the case had not been easy. One of those friends was an Assistant U.S. attorney for the Southern District of the Department of Justice in Houston. He put me in touch with Philip Hilder, a former DOJ prosecutor turned criminal defense attorney and jack of all trades. His retainer was $10,000 to start the case.
I had about $40,000 in savings and my efforts to find a job with Enron’s peer companies in Houston had cooled significantly once noise about Enron’s issues had begun bouncing around business circles in the fall. I was the breadwinner for our family. I was desperate to hold onto my savings for my mortgage and bills. I was still employed at the bankruptcy estate of Enron, owing solely to an in-house lawyer who saved my job on December 3, 2001, telling me he still needed me to meet with the various law firms defending Enron, Enron’s executives and Enron’s board of directors and if I was in emergency job search mode, I would likely not be available for those meetings.
That same in-house attorney did not think I needed my own attorney to represent me. He explained the situation this way: first, Enron had Directors and Officers insurance which covers legal fees when a Director or an Officer has been accused of some sort of wrongdoing. Since I had not been accused of wrongdoing, this coverage wouldn’t apply to me. He then remarked that in the unlikely event that I was called in to be questioned by the DOJ, the FBI, the SEC or Congress, then Enron would prefer I use the lawyers and law firms hired to represent blocks of employees in the same boat. Bankruptcy complicates things, he said, it would be better if I just used the same attorney as others.
My DOJ friend shook his head at this advice, remarking that I probably needed my own attorney. I needed a second opinion. Hence the call to a New York-based attorney I had worked with in the early 1990s when I lived in Manhattan and worked for a commodity finance group. The attorney I phoned had once been Assistant U.S. Attorney for the District of Columbia and general counsel for the Commodity Futures Trading Commission. (Basically, he is a big deal). To this day, I remain eternally grateful that he took my call and gave me advice in my best interest and no one else’s. He could have declined to do either. I’ve come to realize that far too many people back away when they watch the powerless face off against the powerful.
After hearing my story, and my concern about the cost of hiring my own attorney, I heard the strongly worded advice quoted at the top of this page. He then went on to warn me that I should stop talking with any attorneys that I had not hired. Don’t talk with outside attorneys hired by Enron, don’t talk with any of Enron’s in-house attorneys. This was by far the most alarming advice I’d ever been given. I knew and worked with these in-house attorneys, they’d been invited to my wedding, given me baby gifts when my daughter was born in 1999. I considered them friends. Now I couldn’t trust them? He was adamant, no conversations with attorneys I had not hired.
Why am I writing about my personal Enron problems? Why the walk down memory lane?
Because I am passionate about the need for legal advocacy and support for whistleblowers, be they internal or external. Whistleblowers are generally speaking truth to the powerful and without strong legal support, the powerful will always squash the powerless.
I am telling my story here to highlight the history behind whistleblower protections that have been legislated since Enron’s collapse and the efforts by some to dismantle those protections.
Enron’s collapse was swift and stunning. The company went bankrupt without ever reporting a losing quarter and the company’s financial statements only hinted at something squirrelly. The company’s related party disclosures were hard to decipher and appeared to be growing in number and dollar value; and Enron’s quarterly cash flow from operations was negative until the 4th quarter. So troubling clues existed for those with a diligent and discerning eye for numbers and financial statement footnotes, but when Merrill Lynch, among other Wall Street firms, rated Enron a strong buy in late September/early October of 2001, who really needed to look that hard? Surely Enron remained a good investment.
The SEC was established in the 1930s to prevent another Great Depression. Congress does actually attempt to legislate for the safety and well-being of U.S. citizens in their efforts to ensure we have safe food and pharmaceuticals, and trustworthy capital markets, among many other things. Investigations into Enron’s collapse brought about immediate changes, most notably the passage of the Sarbanes-Oxley Act of 2002 which codified best practices for boards of directors, requiring independence and expertise, and requiring CEOs to certify their financial statements and eliminate the “I am not an accountant” excuses Congress heard from Jeff Skilling in his testimony on Capitol Hill in February of 2002.
A Congressional staffer found the memos and workpapers I had used in my meeting with Ken Lay in a box of subpoenaed Enron documents sometime in early January of 2002. Those memos and my name were leaked to The Washington Post and I was soon subpoenaed to testify about Enron. Congressional testimony can include hearsay, so both Senators and Representatives could basically ask me where the skeletons were buried at Enron, or at least where Enron colleagues had told me where the skeletons were buried. My warnings to Ken Lay were too late to save Enron, however, my testimony helped to mark a prosecutorial trail for not just the DOJ in their criminal investigations but also the plaintiffs in the Enron shareholder litigation and even the bankruptcy estate of Enron, as the estate sought to recoup monies from individuals and organizations that had helped it to commit fraud.
When I testified in front of the House Energy and Commerce Committee on February 14, 2001, I was shown a document dated August 24, 2001, two days after I’d met with Ken Lay on August 22, 2001. The document was a memorandum from Vinson and Elkins, Enron’s outside law firm, directed back to Enron, and it included “a summary of the possible risks associated with discharging (or constructively discharging) employees who report allegations of improper accounting practices.” It was a shock to me that Ken Lay had looked first into firing me – kill the messenger – before any investigations into my accounting concerns took place. Although the attorneys clearly stated that “Texas law does not currently protect corporate whistleblowers,” there was some case law that would likely prevent a wrongful termination case from being summarily dismissed by the courts; AND (here’s the kicker), any ongoing litigation would mean “the company’s accounting practices and books and records are fair game during discovery.” Meaning that these Raptor structures don’t look so good under the bright light of court proceedings, so maybe don’t dump her on the street just yet.
When the dust settled on the Congressional investigations into Enron’s demise, Congress decided that whistleblower protections should be a part of the new federal legislation known as the Sarbanes-Oxley Act, passed in July 2002 in the wake of the corporate collapse of Enron, World Com and a few others that year.
The whistleblower protections written into federal law applied to all employees of publicly traded companies. The exact protections read as follows [excerpts below and emphasis added]:
“1514A. Civil action to protect against retaliation in fraud cases
(a) WHISTLEBLOWER PROTECTION FOR EMPLOYEES OF PUBLICLY TRADED COMPANIES.__No company with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 781), or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)), or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee—
(1) to provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders, when the information or assistance is provided to or the investigation is conducted by–
(A) a Federal regulatory or law enforcement agency;
(B) any Member of Congress or any committee of Congress; or
(C) a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct); or
(2) to file, cause to be filed, testify, participate in, or otherwise assist in a proceeding filed or about to be filed (with any knowledge of the employer) relating to an alleged violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders.
(b) Enforcement Action.–
(1) In general.–A person who alleges discharge or other discrimination by any person in violation of subsection (a) may seek relief under subsection (c), by–
(A) filing a complaint with the Secretary of Labor; or
(B) if the Secretary has not issued a final decision within 180 days of the filing of the complaint and there is no showing that such delay is due to the bad faith of the claimant, bringing an action at law or equity for de novo review in the appropriate district court of the United States, which shall have jurisdiction over such an action without regard to the amount in controversy.
(1) In general.–An employee prevailing in any action under subsection (b)(1) shall be entitled to all relief necessary to make the employee whole.
(2) Compensatory damages.–Relief for any action under paragraph (1) shall include–
(A) reinstatement with the same seniority status that the employee would have had, but for the discrimination;
(B) the amount of back pay, with interest; and
(C) compensation for any special damages sustained as a result of the discrimination, including litigation costs, expert witness fees, and reasonable attorney fees.”
The Sarbanes-Oxley Act of 2002 is better known as SOX, and when President George W. Bush signed it into law in August of 2002, his remarks at the signing ceremony were encouraging.
“During the past year, the American economy has faced several sudden challenges and proven its great resiliency. Terrorists attacked a center and symbol of our prosperity. A recession cost many American workers their jobs, and now corporate corruption has struck at investor confidence, offending the conscience of our Nation. Yet, in the aftermath of September the 11th, we refuse to allow fear to undermine our economy, and we will not allow fraud to undermine it either.”
“My administration pressed for greater corporate integrity. A united Congress has written it into law. And today I sign the most far-reaching reforms of American business practices since the time of Franklin Delano Roosevelt. This new law sends very clear messages that all concerned must heed. This law says to every dishonest corporate leader: “You will be exposed and punished. The era of low standards and false profits is over. No boardroom in America is above or beyond the law.”
This law says to honest corporate leaders: “Your integrity will be recognized and rewarded, because the shadow of suspicion will be lifted from good companies that respect the rules.”
This law says to corporate accountants: “The high standards of your profession will be enforced without exception. The auditors will be audited. The accountants will be held to account.”
This law says to shareholders that “the financial information you receive from a company will be true and reliable, for those who deliberately sign their names to deception will be punished.”
This law says to workers: “We will not tolerate reckless practices that artificially drive up stock prices and eventually destroy the companies and the pensions and your jobs.”
And this law says to every American: “There will not be a different ethical standard for corporate America than the standard that applies to everyone else. The honesty you expect in your small businesses or in your workplaces, in your community or in your home, will be expected and enforced in every corporate suite in this country.”
“America’s system of free enterprise, with all its risk and all its rewards, is a strength of our country and a model for the world. Yet, free markets are not a jungle in which only the unscrupulous survive or a financial free-for-all guided only by greed. The fundamentals of a free market–buying and selling, saving and investing–require clear rules and confidence in basic fairness.
The only risks, the only fair risks are based on honest information. Tricking an investor into taking a risk is theft by another name. Corporate executives must set an ethical tone for their companies. They must understand the skepticism Americans feel and take action to set clear standards of right and wrong. Those who break the rules tarnish a great economic system that provides opportunity for all.”
The words of our then-President George W. Bush during the August signing ceremony were inspiring to me then, and remain so today. Our economic system is something we should be proud of, and we do want it to be void of abuses. This was not a partisan issue; both Republicans and Democrats were on board for the corporate reforms passed in 2002. However, it turns out, certain corporations and the organizations in business to advocate for corporate interests were not as happy as the rest of us.
Almost immediately, corporate lobbying firms attempted to water down the whistleblower provisions, even crafting language President Bush used in signing the legislation into law which tried to limit the whistleblower protections to only those employees aiding in Congressional investigations (see language in signing doc here). The law states that protected action is reporting wrongdoing to any federal authority (like the SEC), any law enforcement agency, any Member of Congress, any committee of Congress, or, “any person with supervisory authority over the employee.” This last term includes employees reporting wrongdoing internally. Luckily, the effort to limit the actual law was not effective, and the protections landed in the Department of Labor to develop the policies and procedures needed to maintain the new employee whistleblower protections. The Department of Labor is responsible for enforcing worker safety and health (OSHA law) so it seemed a good choice for these new worker protections.
Corporate lobbying firms do not give up easily. The Secretary of Labor under President Bush was Elaine Chao (Senator Mitch McConnell’s wife), and she readily accepted and adopted a new premise put forth by these corporate advocacy groups that the whistleblower protections applied only to employees of the publicly traded parent corporation. Most frauds happen in operating departments, thereby excluding any whistleblower who reported wrongdoing while an employee of a wholly owned, consolidated subsidiary, but not technically of the parent company. (For instance, in my eight plus years at Enron, my paychecks were from Enron Finance, Enron International, Enron Broadband and in my last year, Enron Corp., the parent company).
In September of 2008, six years after SOX was signed into law, the WSJ reported the Department of Labor “has ruled in favor of whistleblowers 17 times out of 1,273 complaints filed since 2002.” 841 cases had been dismissed with no hearing, strictly on the grounds that the employees worked for a subsidiary, not the parent. Richard Moberly, current Dean of the Nebraska College of Law, had researched and reported the dismal track record at the DOL for protecting whistleblower rights, and his work got the attention of legislators.
Congress was not happy: in fact, Senators Leahy and Grassley pushed for answers, writing Secretary Elaine Chao stating, “we strongly disagree with this legal interpretation. It erroneously excludes thousands of employees Congress meant to protect when it passed Sarbanes-Oxley and contradicts the spirit and intent of the overall legislation.”
About the same time Senators Leahy and Grassley were chastising Secretary Chao, the financial collapse of Lehman Brothers was underway, bringing with it the devasting collapse of our financial sector better known as The Great Recession of 2008. Congress went hunting for financial sector whistleblowers in the DOL’s rejected SOX complaints and they found a few. Richard Bowen, who reported mortgage fraud at Citigroup; Matthew Lee was a Lehman Bros whistleblower; five more who had reported problems at Countrywide, JP Morgan Chase, Bank of America and Wells Fargo and are discussed in a ProPublica article.
To say that Congress was upset would be an understatement. SOX was supposed to provide an effective check and balance against corporate wrongdoing by requiring robust internal controls, certified financial statements with harsh criminal penalties for manipulation, and by preventing retaliation against whistleblowers. Former President Bush’s inspirational speech at the signing of the SOX legislation was now hollow words, the collapse of 2008 far eclipsed the corporate meltdowns of 2002. Sadly, the SOX whistleblower protections had been effectively gutted by unknown corporate lobbying firms convincing then-Secretary of Labor Elaine Chao to “misinterpret” and “misapply” the legislation.
Congress went to work again, to protect our economic system, our workers and shareholders, passing the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. The words of the Act speak more eloquently than me:
“To promote the financial stability of the United States by improving accountability and transparency in the financial system, to end “too big to fail”, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, Dodd-Frank Wall Street Reform and Consumer Protection Act.”
The law is better known as the Dodd-Frank Act, and it adds new regulations of the financial sector including banking, insurance, swaps, hedge funds and more, and the establishment of the Bureau of Consumer Financial Protection to guard against abusive mortgage practices and more. The law runs to 843 pages, and regulators wrote over 8,800 pages of rules, regulations and procedures in the first two years after the act passed just to address about 30% of the rulemaking required by the Act. As for whistleblowers, both incentives and protections were established; prohibiting retaliation for employees who provide information to the SEC, and providing a payment to the whistleblower of 10 – 30% of the sanctions brought against an organization based upon information or analysis provided by the whistleblower. The anti-retaliation protections were enhanced monetarily as well, with reinstatement required, but also 2 times the amount of back pay otherwise owed the individual with interest, along with compensation for litigation costs, expert witness fees and reasonable attorneys’ fees that had been a part of SOX as well.
Congress did not want to read about the success or failure of its new law after the fact, or from the media reporting painstaking research by others, so in Dodd-Frank, the SEC’s Office of the Whistleblower was established with detailed reporting requirements due to Congress each year.
These annual reports highlight the tremendous success of the SEC’s Whistleblower Program and reveal the invaluable role it plays in the agency’s enforcement efforts. According to the 2020 Annual Report to Congress, since 2010, $2.7 billion in total monetary sanctions have been triggered by whistleblower disclosures, including “more than $1.5 billion in disgorgement of ill-gotten gains and interest, of which more than $850 million has been, or is scheduled to be, returned to harmed investors.” Additionally, as of June 2021, the SEC has awarded approximately $938 million to 179 individuals since issuing its first whistleblower award in 2012.
Furthermore, SEC officials have repeatedly touted the merits of the program and the invaluable role it plays in the agency’s enforcement efforts. For example, in 2020, then-Chair of the SEC Jay Clayton stated: “[o]ver the past ten years, the whistleblower program has been a critical component of the Commission’s efforts to detect wrongdoing and protect investors and the marketplace, particularly where fraud is well-hidden or difficult to detect.” Clayton continued by saying, “I want to note our appreciation to whistleblowers who, sometimes at great risk to their livelihood, report suspected securities laws violations to the SEC. Our whistleblower program has been a success because of their efforts. Working together, we have stopped frauds and prevented losses for countless investors.”
From my perspective, the greatest thing about the Dodd-Frank Act is the monetary retaliation protections and the reward program for whistleblowers. The ability to receive 2 times back pay, plus litigation costs, or to receive 10 – 30% of sanctions levied against the offending company, gives the whistleblower a means to hire the legal expertise they so desperately need.
The fall of 2001 was truly a bleak, lonely, and uncertain time for me. I was incredibly naïve to believe that truth and evidence of fraud would rule the day; I grossly underestimated the power of denial and the overwhelming motivations to ignore the elephant in the room. Since I was speaking out about the elephant in the room, the efforts to nullify me and my message were constant. No one was in my corner until Philip Hilder decided to represent me, despite me complaining that I was too close to broke and unemployed to give him the $10,000 retainer. He took my case hoping he might get paid for his expertise down the road, through the bankruptcy process (a very uncertain concept). Philip was the perfect attorney, he had been a DOJ attorney, he’d represented clients in Congressional hearings, and he understood that criminal charges were likely for the wrongdoers at Enron. He also told me to stop talking to any attorney from Enron, that he should be present for any discussion and if I did not take that advice seriously, he would not be able to represent me. So, two attorneys told me the same thing, and very sternly. Basically, people I had known, worked with, and considered friends were now the enemy who might very well ‘lie, cheat and steal’ for their client to smear and destroy me. No wonder the negative lawyer stereotype exists, if one’s own personal integrity and ethics could be put aside so easily, all it takes is a client paying for and desiring a certain outcome.
Philip is the founder of Hilder and Associates, P.C., a small firm which specializes in white collar criminal defense, internal investigations, whistleblower actions including related civil and regulatory matters, among other areas. By late 2001, I had received subpoenas from the DOJ/SEC for all my business and personal records, and they were in discussions with Philip about testimony. The Enron board of directors had finally woken from their slumber and decided that perhaps an independent investigation should be done into my concerns and a few others. The board hired Wilmer, Cutler & Pickering and Deloitte Touch to conduct this investigation and they were wanting to speak with me. Soon, Philip was also fielding calls from Congressional Committees wanting to subpoena me to testify. The whole situation became chaotic and hectic in short order. I was very grateful that Philip understood the environment and was constantly advising me as to who, what and how I could speak to investigators, Congress, Enron’s investigative team and the press. (The press was basically a no-go, as he said no good could really come from speaking to the press). I will never forget the surreal experience of sitting in Philip’s office getting instruction on the under-oath testimony coming up with the DOJ/FBI/SEC group, when one of his assistants walked in to inform him that she had found make-up people in D.C. and hair people in D.C. but not someone who did both, so what did he want? What? Philip looked over at me and said no one should testify in front of Congress and those C-Span cameras without professional make-up, so make-up over hair right? I could only shake my head yes, but inside, I was amazed that my attorney who was juggling so many legal balls in the air on my behalf, had also just booked a professional make-up person for me for my first Congressional testimony. He truly was a jack-of-all-trades. On a quick aside – the make-up professional told me she typically did the Congressmen for their big hearings, telling me most of the Senators and Congressmen we see on some big important hearing had make-up done for the cameras.
I can’t imagine how my situation would have turned out if I had not had Philip Hilder by my side. He started on my case in late 2001 and provided my sole legal support through the Congressional hearings of 2002, then the multiple under-oath meetings with the DOJ and FBI investigating Enron and its executives, culminating in the 2006 testimony I gave in the criminal trial of Ken Lay where I was a witness for the government. His work went past that 2006 trial through 2007 with shareholder litigation depositions and then helping me defend an accusation that the Texas State Board of Public Accountancy received accusing me of violating the standards of Texas Certified Public Accountants because I didn’t do enough when I found fraud at Enron. He was adamant that I’d worked hard to be a CPA and some bogus allegation was not going to rob me of that certification. The ‘evidence’ provided against me had come from the shareholder depositions. It was alarming that I had enemies lurking in so many corners.
Philip received only partial payments for all his work, primarily from the bankruptcy estate of Enron, as my efforts were deemed a help to the estate in identifying those people and organizations that helped Enron commit fraud and harm shareholders. Philip basically worked for a cause over monetary compensation for his expert services. Without him, the powerful individuals I was accusing of wrongdoing would have squashed me. He helped balance my powerless situation against the powerful and monied folks. I am forever grateful.
I am the only person I know of with the whistleblower label who has a blessed life. I’ve been able to support myself on the lecture circuit, I was lauded in the press, I co-wrote a book on the Enron collapse, and I generally lead a satisfied and contented life. This is extremely rare for whistleblowers. Most have wrecked marriages, failed careers, bankruptcies and loss of home and more. My ability to have skilled legal support is a huge reason that I’m okay. It’s not just the legal expertise, it’s the emotional support of having someone believe you and fight for you. My experiences have sharpened my focus and my efforts to be sure whistleblowers have a support network. The whistleblower protections in Dodd-Frank have been a game changer, with the reward program providing a means for attorneys to be paid and thus attracting legal talent to the cause of the whistleblower.
The Office of the Whistleblower at the SEC has been very successful at stopping corporations from wrongdoing, as noted earlier.
Thankfully, the success of the program has weakened the efforts of corporate forces hiding behind advocacy groups to revise the SEC’s program and undermine its effectiveness.
In 2018, the SEC announced a number of proposed rule changes to the whistleblower program. Included in the proposed rules were a cap which would automatically lower the size of the largest whistleblower awards as well as additional administrative barriers to qualify for awards. These changes were widely opposed by whistleblower advocates but supported by the U.S. Chamber of Commerce.
In September 2020, the SEC commissioners voted on and approved a final version of the changes to the whistleblower program. In a big win for whistleblowers, the cap on large awards was not included in the final rules. Likewise, some of the strict administrative barriers were loosened in the final version.
Even so, whistleblower advocates warned against the potential dangers of new rules which could allow the SEC to avoid paying rewards to deserving whistleblowers. For example, a new rule stipulates that, in order to be eligible for an award, a whistleblower must file an official TCR (Tips, Complaints, Referrals) form with the SEC within 30 days of first making contact with the agency. Alongside the new rules, the SEC also issued guidance on granting awards for independent analysis. This guidance, according to a letter sent to the SEC by a group of U.S. Senators, “permit[s] the SEC to create an insurmountable hurdle for a whistleblower to establish original information based on ‘independent analysis.’”
Fortunately, SEC whistleblower awards issued since the rules went into effect in December 2020 have eased some fears about the SEC using the rules in bad faith. In recent months the SEC has exercised its discretion to waive the TCR filing requirement in two separate award decisions. In both award orders, the SEC stated that it “determined that it would be in the public interest and consistent with the protection of investors for the Commission” to waive the requirement and issue an award. Since the rules went into effect, the SEC has also issued two awards to whistleblowers whose disclosures were based upon independent analysis.
The SEC’s commitment to its whistleblower program is also reflected in the record fiscal year the program is currently having. Since the 2021 fiscal year began on October 1, 2020, the SEC has awarded approximately $376 million to 73 individuals – both figures are fiscal year records.
In my opinion, the whistleblower program is acting as a very effective check and balance to abuses of power within the financial sector. My hope is that corporate leaders recognize that securities law violations are likely to be discovered, and therefore they focus heavily on the development and maintenance of robust cultures of high integrity, and cease efforts at undermining whistleblower protections through their advocacy and lobbying groups like the U.S. Chamber or the Business Roundtable. However, because these corporate lobbying groups have already been set loose to attack whistleblower protections, whistleblower advocacy groups have to stay on high alert to their attacks. There are already troubling events in the judicial arena that have brought uncertainty to whistleblowers.
In Digital Realty Trust, Inc. v. Somers [138 S. Ct. 767 (2018)], the Supreme Court ruled that the anti- retaliation protections of the Dodd-Frank Act are limited to those whistleblowers who report securities violations directly to the SEC while they are still employees. The employee in question, Somers, had reported internally (a protected action under SOX), and was fired. Somers failed to file a complaint under SOX within the 180 day deadline and subsequently reported to the SEC and sought protection under Dodd-Frank. The Supreme Court ruled against Somers, stating he did not fall within the scope of a protected whistleblower under Dodd-Frank because he failed to inform the SEC of the violations while he was an employee of Digital Realty. Somers is now out of luck, he has no federal remedy to recover for his wrongful termination. The CPA Journal wrote about Somers this past Spring, in an article called “Whistle While You Work, a Cautionary Tale.” I highly recommend a thorough reading of this article and the noted repercussions of the Supreme Court’s ruling.
These efforts to undermine the monetary amounts to a whistleblower continue; if recouping attorneys’ fees are questionable because retaliation timing must match a strict timeline of report to SEC first/retaliation second or timing of filing a whistleblower retaliation complaint is tight, or the need to fill out a TCR form has created hurdles, then the door has opened to a possible denial of a reward or denial of retaliation awards… all this uncertainty impacts the ability to hire legal support.
Considering that all important advice I received in late 2001, “Sherron, even if it’s the last $10,000 you have, you have to use it to hire an attorney. If what you are telling me is correct, people will be going to prison. If you show up without an attorney, you will be crucified. They will lie about you, fabricate evidence, turn the tables on you, you MUST have an attorney by your side.” The ability to hire an attorney remains the single most important safeguard for whistleblowers.
Thankfully, I did have Philip Hilder at my side who ended up working more for a cause than payment for services rendered. A situation that has been repeated by far too many attorneys with soft hearts for the underdog. Congress keeps trying to change that, let’s stay vigilant and not let dark forces lurking behind the latest judicial rulings and pushes to weaken SEC whistleblower programs succeed.