Whistleblower Complaints: Fast Action Required


Recently I wrote about an internal investigation I did for a company which received a whistleblower complaint, sent to executives, the board of directors, and the Securities and Exchange Commission. Upon receiving notification that allegations of fraud were being made by a former employee, management immediately started evaluating the claims. The board of directors began planning for an independent investigation.

This was the right thing to do, particularly as the SEC’s whistleblower program gives a 120 day window of time for companies to react to internal allegations of securities fraud. If someone reports allegations to a company, 120 days pass, and then the informant goes to the SEC, the SEC will consider the person making the report to be a whistleblower eligible for a bounty.

Companies are being urged to immediately investigate any credible allegations of wrongdoing, such that they could head of (or at least limit the scope) of a later investigation by the SEC. Companies may also self-report the results of their investigation, even if the SEC hasn’t been made aware of the situation by a third party. Again, by proactively investigating and reporting the results, a company can limit a potential SEC inquiry because the company may be given credit for being proactive.

The company in my case study benefited significantly by doing an early independent investigation. Had management waited to begin the investigation, it likely could not have been finished prior to the SEC becoming officially involved. The results would have been of little use.. But because the investigation was finished prior to being contacted by the SEC, the official results of the independent internal investigation had more credibility with the government.

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