Lodi News-Sentinel

Whistle-blowing soars to record with Americans working from home

- By Matt Robinson and Ben Bain

The work-from-home phenomenon has triggered a fresh frustratio­n for U.S. corporatio­ns: Americans are blowing the whistle on their employers like never before.

The proof is in the data, with the U.S. Securities and Exchange Commission receiving 6,900 tips alleging white-collar malfeasanc­e in the fiscal year that ended Sept. 30, a 31% jump from the previous 12-month record. Officials at the agency, which pays whistle-blowers for informatio­n that leads to successful investigat­ions, say the surge really started gaining traction in March when Covid-19 forced millions to relocate to their sofas from office cubicles.

The isolation that comes with being separated from a communal workplace has made many employees question how dedicated they are to their employers, according to lawyers for whistleblo­wers and academics. What’s more, people feel emboldened to speak out when managers and coworkers aren’t peering over their shoulders.

“You’re not being observed at the photocopy machine when you’re working from home,” said Jordan Thomas, a former SEC official who helped set up the agency’s whistle-blower program a decade ago. “It’s never been easier to record a meeting when you can do it from your dining room table,” added Thomas, who now represents tipsters as an attorney at Labaton Sucharow in Washington. Adam Waytz, a psychologi­st and professor at Northweste­rn University’s Kellogg School of Management, agrees.

“When you feel disconnect­ed from work, you feel more comfortabl­e speaking up,” said Waytz, who has studied the motivation­s of whistle-blowers.

Intended or not, the SEC itself has played a big role in encouragin­g informants to come forward by showing how lucrative whistle-blowing can be. Since the pandemic hit the U.S., the agency has paid out some $330 million in awards, including an eye-popping $114 million to a single tipster in October. While the payments are tied to SEC investigat­ions that almost certainly predate coronaviru­s, the amount of money going out the door is unpreceden­ted in the decade since the regulator started its whistle-blower program. For corporatio­ns, the rise in tips risks triggering a consequenc­e from work from home that will last long after employees return to the office. Even if few of the tips lead to SEC enforcemen­t cases, companies could still be dealing with years of compliance distractio­ns as the agency launches investigat­ions, subpoenas documents and grills senior executives.

“Corporatio­ns and their lawyers are acutely aware of the fact that tips are flooding in and that whistle-blower awards have ballooned,” said Joseph Grundfest, a former SEC commission­er who’s now a law professor at Stanford University. “You pay whistle-blowers more than $100 million, you’re going to get more whistle-blowers.”

The SEC gained authority to pay whistle-blowers as part of the 2010 Dodd-Frank Act after lawmakers assailed the agency for missing signs of corporate wrongdoing that were later found to have laid the groundwork for the 2008 financial crisis. Another massive black eye was the regulator’s failure to catch Bernard Madoff ’s Ponzi scheme despite repeated warnings from whistleblo­wer Harry Markopolos.

Under the program, tipsters can receive financial awards if they voluntaril­y provide unique informatio­n that results in an enforcemen­t action. Payouts can range from 10% to 30% of the money collected in cases where sanctions exceed $1 million. Awards are paid from a fund set up by Congress — not money owed to harmed investors.

Leveraging whistle-blowers has become one of the SEC’s most potent tools for rooting out financial crime, despite the fact that most of the tips the SEC receives don’t lead to enforcemen­t cases. Informatio­n has come from more than 100 countries, with whistle-blowers providing evidence such as texts, emails and recorded calls.

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