SEC Whistle Blowing Program

By: Evelyn Chavez

SEC whistle blowing program

Evelyn Chavez

Professional ethics and ethical behavior has recently become a topic of interest within the business community. It is an issue with great importance to both the business fields as well as the government hence all the laws, rules and regulations. Not everyone agrees on the parameters of professional ethics (Davis & Welton, 453) meaning that some firms challenge this idea, but sometimes it ends up backfiring. It all depends on their personal judgment sometimes on whether something it ethnical or not. In order for a firm to improve the ethical behavior of the organization over, according to Davis and Welton, they must coincide with improving the ethical behavior of its employees. However, there is much controversy on whether it is possible without the improvement of the ethical behavior of society in general (454). One way that society might be improved is through education outside firms and from the inside. It is the firms responsibility to properly train their employees and to teach them about the firm itself and ethical behavior within the firm as well as them as a company to have ethical standards. For these reasons among others the U.S. Securities and Exchange Commission (SEC) office of the whistleblower has establish a program in order to ensure that all companies maintain ethical behaviors. An accounting firm is continuously facing ethical dilemmas which can be debatable on whether it is ethics or not. One of these dilemmas falls under whistle blowing which is when an accountant or employee has knowledge about illegal activities throughout the firm and they report it to the public (Investopedia). There are certain controversies when dealing with these dilemmas such as who is eligible to do so, how to decide whether to report an activity or not, who do they report to, and the consequences to the employee.

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SEC whistle blowing program

Evelyn Chavez

The SEC whistleblower program was created by congress. It is a program that provides monetary incentives or a cash reward for those individuals who go forward and report any ethical violations committed within a firm. These reports of ethical violations must violate one or more of the federal securities laws to the SEC. If indeed these firms are in some kind of violation the eligible whistleblower receives an award of between 10% and 30% of the monetary sanctions collected in actions brought by the SEC as well as anything else collected by other regulatory and law enforcement authorities. This program also protects an employee against another employee in case they try to sue or retaliate against the employee that provided the information regarding securities violations. In order for an employee to be eligible to become a whistle blower they must have certain knowledge about the firms internal control. However, they do not have to be employed by the company to submit information about them. The employee must possess reasonable belief that the information they contain breaches security laws. The information is given in a manner described in Section 21F (h)(1)(A) of the Exchange Act (15 U.S.C. 78u-6(H)(1)(A)). When submitting a claim no more than two individuals can submit it. For instance, a company cannot be a whistle blower. Also the eligible whistleblower most provide original information voluntarily about something that already occurred or is going to occur. This occurrence must exceed monetary amount of at least a minimum of a million. An ethical dilemma is a situation where the welfare of one or more individuals, in this case the public, is affected by a decisions made from the other party (the accounting firm). Taking the appropriate course of action is not always as simple as it

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SEC whistle blowing program

Evelyn Chavez

sounds. The employee first has to identify the problem followed by identifying the possible course of action, identifying any constraints relating to the decision, analyze the likely effects of the possible courses of action and finally select the best course of action (Whittington, 62). Once it has been decided to submit any information to the SEC Whistleblower Program all the information must be original. The information must be specifically from independent knowledge and not from any public source at all. The information also has to be new information to the program otherwise it will not be valid. It is only valid to the original source or first person to introduce that information. Once and only the information leads to an investigation, re-opens an investigation or adds to an already opened investigation it will be considered valid information. However, in order to receive the incentive an enforcement action must be taken based of the information contributed by the whistleblower. In order to be eligible in an already open investigation the information given must contribute significantly to the success of the firm resulting with enforcement action. When reporting the information directly to the firm and after the firm reports an internal investigation to the program this can lead to eligibility. But, if the firm does not report it then the whistle blower must report it themselves within 120 days otherwise they will not be eligible for an award. In order to become a whistle blower one must first submit any information that they believe to be a breach of ethical behavior. To do so one can submit their information through the online Tips that the SEC Whistleblower Program has set up. Another way requires a Complaint and Referrals questionnaire or by completing a hard copy of the Form-TCR and mailing it directly to the SEC office or faxing it. All

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SEC whistle blowing program

Evelyn Chavez

information can be submitted anonymously as long as an attorney is present at the time of submission. The Freedom of Information Act protects the whistleblowers identity but only to a certain extent. In certain cases their identity must be revealed such as in an administrative or court proceedings as well as certain documents being produced. There might also be other circumstances where confidential information might be required to be submitted to other government or regulatory. Although you give original information to the SEC it does not automatically qualify a person to earn or receive an award. Once again, if the information given exceeds one million dollars in sanctions it would be posted on the SEC Whistleblower Program website and any one that believes to qualify may apply themselves or have their attorney apply for them. In the scenario where an individual is working directly with the SEC and the investigation they might be notified personally that they may qualify for the incentive and instructed to apply for the reward. Apply has its own steps as when contributing information to the SEC. A firm cannot take direct action towards an employee that submits information to the SEC program or that works with them directly in an investigation. If any actions taken such as discharge demote, suspension, harassment or any other kind of discrimination then the employee can take the employer to federal court. Not only can the employee take legal action for these reasons but so can the Commission. If the employee prevails in court they can be entitled to reimbursement, double back pay, litigation costs, expert witness fees, as well as attorney fees. Not only that but under the Sarbanes-Oxley Act the employee may also be entitled to file a complaint to the

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SEC whistle blowing program

Evelyn Chavez

Department of Labor if they receive any kind of retaliation for participating in the SEC program. Having the SEC Whistleblower Program gives an individual the initiative to go forward and report any unethical or illegal actions regarding an employer that they are aware of. Having the incentive of the award is always a bonus but the true reward is recognizing that one is making the right decision. This program will definitely help me personally in the future. Like many other people it is hard to do the correct thing because the right procedures can sometimes lead to a bad outcome. For instance, taking something public that is internal to a company probably goes against the companys rules, but sometimes it is necessary. At least with such program I am aware of the benefits about being truthful and ethnical. It simply will make it easier in the future having the knowledge of this program of how it works in case one day I am stuck in a dilemma where I have to decide whether to talk or keep quiet. Even if I do go to the SEC because I feel like my employer is committing a fraud or breaking an ethical rule I will know that they will keep it confidential unless taken to court or so and that I will be protected due to the Sarbanes-Oxley Act. But in the scenario that my information leads to no investigation at least my conscious will remain clean because I know I took that correct course of actions to address a situation which I believed to be unethical.

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SEC whistle blowing program

Evelyn Chavez

References
Davis, James R., and Ralph E. Welton. "Professional ethics: Business students' perceptions." Journal of Business Ethics 10.6 (1991): 451-463. "Frequently Asked Questions." :: SEC Office of the Whistleblower. N.p., n.d. Web. 07 Nov. 2012. <http://www.sec.gov/about/offices/owb/owb-faq.shtml>. "Whistle Blower." Definition. N.p., n.d. Web. 07 Nov. 2012. <http://www.investopedia.com/terms/w/whistleblower.asp>. Whittington, Ray, and Kurt Pany. Principles of Auditing & Other Assurance Services. New York: McGraw-Hill Irwin, 2012. Print.

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