CBA Record April-May 2018

SEC rules, for example, attorney-client privileged information may only be used if disclosure would be allowed under state or federal law. For example, an attorney representing a company may report miscon- duct without the company’s consent if the attorney reasonably believes that reporting is necessary to prevent the issuer from com- mitting a material violation that is likely to cause substantial injury to the company or investors. 17 CFR § 205.3(d)(2). Similarly, internal audit and compli- ance personnel can be whistleblowers if reporting is necessary to prevent substantial injury to the company or others, if there is reason to believe the company is simul- taneously engaging in conduct that will impede an investigation, or if the employee reported to specified higher-ups and 120 days has passed without steps being taken to prevent it. For example, in April 2015, the SEC awarded approximately $1.5 million to a compliance officer who believed disclosure was “necessary to pre- vent imminent misconduct from causing substantial financial harm.” See SEC, SEC Announces Million-Dollar Whistleblower Award to Compliance Officer (April 22, 2015), available at https://www.sec.gov/ Although internal information is often the key to a successful whistleblower tip, that is not always the case. Some of the newer whistleblower programs allow outsiders to serve as whistleblowers, as long as they employ independent analysis. Under the SEC and CFTC programs, for example, “[i]ndependent analysis means your own analysis, whether done alone or in combination with others. Analysis means your examination and evaluation of information that may be publicly avail- able, but which reveals information that is not generally known or available to the public.” See 17 CFR § 240.21F-4(b) (3); see also 17 CFR § 165.2(h). In this way, the regulations encourage work by outsiders who, for whatever reason, have insight into the illicit workings of an orga- nization to bring unique information that leads to a successful enforcement action. For example, the SEC awarded $700,000 news/pressrelease/2015-73.html. Outsiders Can Be Whistleblowers

believe that they are influential within their organization who report wrongdoing at a rate of 76%; those with a lower self- esteem within their organization report at a significantly lower rate of 52%. Similarly, managers report at a higher rate (80%) than non-managers (54%). Employees who recently received raises report at a higher rate (76%) than those whose com- pensation has remained steady (62%) or declined (55%). Employees anticipating a longer career at their company report at a higher rate (70%) than those who antici- pate leaving within two years (57%). The typical whistleblower works at the core of a company’s business or operations. For example, earlier this year, the SEC awarded $83 million to three insiders who tipped the SEC off to Bank of America divisionMerrill Lynch’s misuse of customer funds to finance the firm’s trading activities. These individu- als had specific knowledge concerning the alleged misconduct that they accessed as part of their daily responsibilities. See Matt Robinson, Merrill Insiders Get $83 Million in SECWhistle-Blower Awards , Bloomberg (March 19, 2018), available at https://www. bloomberg.com/news/articles/2018-03-19/ two-whistleblowers-share-50-million-in- sec-s-largest-ever-award. Traditional Whistleblowers are Business Insiders

Core insiders are well-suited to provide the material and independent knowledge necessary to initiate or maintain a success- ful enforcement action by the regulator. Independent knowledge—as opposed to hearsay or speculation—is of paramount importance to regulators. The SEC whis- tleblower provisions, for example, state, “[independent knowledge means factual information in your possession that is not derived from publicly available sources. You may gain independent knowledge from your experiences, communications and observations in your business or social interactions.” See 17 CFR § 240.21F-4(b) (2). The CFTC embraces a similar defini- tion. See 17 CFR § 165.2(g). Legal and Compliance Personnel Can Be Whistleblowers Legal and compliance personnel are not automatically disqualified from being whistleblowers. Most regulations take a balanced approach to ensure that internal information made available to compliance or legal departments is not used for per- sonal gain at the company’s expense. See , e.g. , 17 CFR § 240.21F-4(b)(4); 17 CFR § 165.2(g)(7). Lawyers, of course, must take care to ensure that the circumstances allow disclos- ing information obtained in the course of the attorney-client relationship. Under the

38 APRIL/MAY 2018