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.
Jennifer Coombs is an associate professor at the College for Financial Planning —a Kaplan Company located in Denver. She is the creator, lead author, and lead instructor for the Chartered SRI Counselor™ (CSRIC™) designation program developed in partnership with US SIF as the first professional financial education program for financial advisors in the United States exclusively devoted to sustainable investing.
Prior to joining the College, Jennifer worked in New York City for several Wall Street firms in such varied roles as technical and fundamental analysis, equity research, trading and portfolio management. Jennifer has given two TED talks on the topic of sustainable and responsible investing: “Investing for a Better World: Using Wall Street to Implement Social Change” (November 2015 at TEDx Jersey City), and “Stopping the Rebuttal: Millennial Investors and the Future of Sustainability” (April 2018 at TEDx Clarkson University). She has also given presentations at and interviews on “Dollars & Change” Wharton Business School Radio on Sirius XM, Bank of America/Merrill Lynch Wealth Management, The Society of Financial Services Professionals (FSP), The CFA Society of New York, US SIF Annual Conference, The SRI Conference, and Advisor Group.
Jennifer holds a Master of Science in Finance and is a member of the ESG Advisory Board at Investment News and serves on the education committee of US SIF. She resides in her home state of Vermont.
Karen Furtado, partner Strategy Meets Action, is a well-known authority on insurance technology and how it fuels transformation within insurance companies. Her focus is helping insurers prepare for the future of the industry through the decisions they make today. Karen’s deep understanding of how to effect change guides insurers in the development and implementation of their transformation roadmaps. Her comprehensive knowledge stretches across core systems, the implications of insurtech, and enhancing adaptability and flexibility in a changing market. Her commitment to promoting innovation, encouraging the exploration and adoption of new technologies, and developing proactive ways to plan for the future draws those seeking an edge. In a highly competitive world, Karen brings exceptional knowledge and experience to the challenges of connecting solutions to business and IT requirements.
For more than 30 years, Karen has held leadership positions across the insurance industry. She was previously the Vice President of CGI's Insurance Practice, where she had responsibility for the development of their strategic direction and oversight of CGI's insurance software services, hosted software services, and core insurance BPO practice.
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As an RIA and fintech insider, he brings deep expertise in advisor-facing technologies including CRM, financial planning, and portfolio management applications. As a practicing financial planner, Ernie is in a unique position to add value to his clients. Whether it’s implementing new technologies, creating efficient and repeatable processes, or contemplating the digital experience for his personal clients, Ernie can easily align with the challenges facing today’s advisors.
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