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 percent jump from the previous 12-month record. Officials at the agency, which pays whistleblowers 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.
Jeff is a founding member of Informed Consulting. He has 25+ plus years of employee benefits experience working with enterprise employers, digital health companies, health plans, insurance carriers, InsureTech, HCM, and financial wellness companies.
Via Informed Consulting, Jeff served as the CRO (Seed Round, Series A, and Series B) at Nayya. He held various sales leadership positions in 12 years at Benefitfocus, a benefits administration company. At Benefitfocus, Jeff developed an ecosystem distribution market for early-stage digital health and financial wellness companies. Prior to Benefitfocus, Jeff worked for health plans and insurance carriers for 13 years.
Jeff was named by Employee Benefits Advisor as “30 Benefit Thought Leaders to Know” and “30 People to watch in Benefits 2017”. Jeff has been featured in CNBC, Inc Magazine, Forbes, Employee Benefits News, US News and World Report, SHRM Magazine, and numerous other publications.
Julia Hu is an American entrepreneur and the co-founder and CEO of Lark. Founded on the personal experience of having grown up with an undiagnosed chronic condition, Julia is passionate about bringing compassionate care to those preventing or managing chronic disease. Hu was named to Business Insider’s 30 Under 40 Changing Healthcare list and was awarded as a member of the UCSF Health Awards Hall of Fame in 2021, as well as the EY Entrepreneurial Winning Women™ North America Class of 2021. Prior to founding Lark in 2011, Julia ran global startup incubator, the Clean Tech Open, built a sustainable construction startup, and was an Entrepreneur-in-Residence at Stanford’s StartX incubator. She is on the board of the Council for Diabetes Prevention and a Singularity University faculty member. Hu received her Master’s and Bachelor’s degrees at Stanford University and half of an MBA from MIT Sloan before founding Lark.
Bernie Dyme is president and CEO of Perspectives LTD, a behavioral health firm committed to delivering high-quality employee assistance programs, behavioral health, and organizational consulting services.
He is passionate about ending the stigma attached to mental health ensuring that everyone in companies has full access to mental health services and also focuses on prevention and early intervention. He is an active member of more than a dozen professional and community organizations that work toward his passion of bringing resources to all employees and organizations to ensure full access to help. These include the Employee Assistance Professionals Association (EAPA), the Society of Human Resource Professionals (SHRM), and the Executives Club of Chicago. He is also the Chair of the Advisory Council of The Crown Family School of Social Work, Policy and Practice at the University of Chicago. He is the past president of the Board of Directors for the Chicago Coalition for the Homeless and is currently an active member of the Board.
Bernie is a licensed clinical social worker (LCSW). He has his master’s degree in social work from the University of Chicago.
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 co-workers 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 whistleblower 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 whistleblowers.
Massive award
Intended or not, the SEC itself has played a big role in encouraging informants to come forward by showing how lucrative whistleblowing 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 whistleblower 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 whistleblower awards have ballooned,” said Joseph Grundfest, a former SEC commissioner who’s now a law professor at Stanford University. “You pay whistleblowers more than $100 million, you’re going to get more whistleblowers.”
The SEC gained authority to pay whistleblowers 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 percent to 30 percent 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 whistleblowers 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 whistleblowers providing evidence such as texts, emails and recorded calls.
Altered voices
The SEC never discloses the names of whistleblowers and what cases were brought with their help. Agency officials sometimes don’t even know the identity of tipsters. Thomas, the whistleblower attorney, has gone so far as to use voice-changing technology to disguise clients’ genders on conference calls with the SEC.
About $737 million has been paid to 133 individuals since the SEC issued its first payment in 2012, with most tipsters waiting months or even years after the agency wraps up its investigations to get their awards. Part of the reason payouts have quickened recently is that the SEC has streamlined its process so that enforcement lawyers who work with tipsters can actively vouch for how crucial their help was.
Discussing the dramatic jumps in tips since the start of the pandemic, then SEC Enforcement Director Stephanie Avakian said Dec. 3 that it’s too soon to assess the quality of the information the agency is receiving. She credited the huge awards that the SEC paid out last year as an important factor in encouraging whistle-blowing.
“Making more awards — certainly larger awards — all those things do go toward incentivizing whistle-blowers to come forward,” Avakian, who left the SEC last month, said at an event hosted by the American Conference Institute.
Overwhelmed regulators
Grundfest, the Stanford Law professor, just hopes the SEC doesn’t get overwhelmed.
“The problem is that they’re being flooded with tips and don’t have a robust mechanism for separating the wheat from the chaff,” he said.
In recent months, the SEC has received reports on possible financial-disclosure violations and the mismarking of assets. The coronavirus’ impact on businesses has also triggered allegations of wrongdoing, as companies have a responsibility under SEC rules to be truthful about how the pandemic is affecting their bottom lines.
“It’s very convenient for management to blame COVID for underperformance,” said Howard Schilit, author of “Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports.” “It becomes an alibi for a company’s problems.”
— With assistance from Tom Schoenberg