Whistleblower Triggered SEC Investigation – Now What?

A whistleblower complaint can immediately transform your SEC compliance program from a proactive measure into a critical defense tool. In today’s regulatory environment, whistleblowers have become empowered with protections and incentives. If a former or current employee, investor, or other insider has filed a whistleblower complaint with the SEC, you cannot afford to take it lightly.

The SEC’s whistleblower program was established under Section 922 of the Dodd-Frank Act in 2010. Since then, the program has awarded millions of dollars to individuals who have provided information that has led to successful enforcement actions. Whistleblowers are protected from retaliation, and their identities are kept confidential. This has led to a significant increase in the number of whistleblower complaints filed with the SEC. In 2022, the SEC’s Office of the Whistleblower received a record-breaking number of tips and awarded the largest whistleblower award to date.

SEC investigations triggered by whistleblower complaints can have serious consequences for companies, executives, and investors. The SEC has broad authority to investigate potential violations of the federal securities laws, including the power to subpoena documents and testimony, conduct interviews, and inspect company records. Once an investigation is launched, it can be costly, time-consuming, and potentially damaging to a company’s reputation and financial stability.

The SEC’s Process for Investigating Whistleblower Complaints

When a whistleblower files a complaint with the SEC, the agency conducts a preliminary assessment to determine if the complaint warrants further investigation. If the SEC decides to open an investigation, it will typically issue subpoenas to the company in question, requesting documents, communications, and other information related to the potential violation. The company will then need to respond to these subpoenas and cooperate with the SEC’s investigation.

The SEC’s Division of Enforcement is responsible for investigating potential violations of the federal securities laws. The Division has a number of tools at its disposal, including the ability to:

• Subpoena documents and testimony
• Conduct interviews with witnesses and potential violators
• Inspect company records
• Request documents and information from third parties

The SEC’s investigation process is typically confidential, and the agency will not comment on the existence of an investigation until it is closed or until a public enforcement action is taken. However, the SEC’s investigation can have serious consequences for companies, including:

• Financial penalties
• Disgorgement of ill-gotten gains
• Prohibitions from serving as an officer or director of a public company
• Other sanctions

How Spodek Law Group Can Help Companies Targeted by SEC Whistleblower-Initiated Investigations

If your company is targeted by an SEC whistleblower complaint or investigation, it is important to seek legal counsel as soon as possible. Our SEC defense attorneys have extensive experience representing companies in SEC investigations, including those triggered by whistleblower complaints. Our legal team can help:

• Develop a response to the SEC’s subpoenas and document requests
• Conduct an internal investigation to assess the potential violation
• Negotiate with the SEC to resolve the investigation and avoid enforcement action
• Defend the company in court if an enforcement action is brought

What to Do if Your Company is Targeted by an SEC Whistleblower Complaint

If your company is targeted by an SEC whistleblower complaint, it is important to take immediate action to protect your company’s interests. Some steps you should take include:

• Contact legal counsel immediately
• Preserve all relevant documents and communications
• Cooperate with the SEC’s investigation
• Conduct an internal investigation to assess the potential violation
• Develop a response to the SEC’s subpoenas and document requests

It is important to take the SEC’s investigation seriously and to cooperate fully with the agency. Failure to do so can result in more severe sanctions and penalties.