United States: Fleet-Footed Investigations And Prompt Remedial Action: The New Normal

Does your company respond to all internal concerns immediately, investigate them thoroughly and remediate them with unmatchable speed?  What if the concern comes from an officer, director, lawyer, compliance professional, internal auditor, or an outside accountant?  Do you assume you have time because, after all, it is the informant's "job" to identify and remedy non-compliance?  Or do you jump on the concern regardless of who raises it, launching and concluding your investigation and implementing remedial action within 120 days? 

The Security and Exchange Commission's recent Dodd-Frank bounty award of half a million dollars to a former company officer who waited the requisite 120-day period tells companies they must act immediately no matter who raises or learns of the concern. This is the SEC's first award to an officer who was not the individual raising the concern internally, and shows that individuals with compliance-related jobs and other "bystanders" are fully able to report matters to the SEC and collect awards.  Act now on every concern, the SEC is saying, unless you would prefer to outsource your investigation to them. 

The SEC's March 2, 2015 press release1 is also a clarion call to anyone observing corporate fraud.  In this and other recent public statements, the SEC reaffirms that no matter who you are or how you learned of the fraud, you are encouraged to come forward and you will be heard.  For every employer the message is equally clear:  your internal complaint system should do no less. 

Whether you are a public or private entity, the time is now to develop a reliable investigation system that welcomes internal concerns and promptly and capably addresses them.  And that includes concerns raised by individuals who oversee and implement the company's compliance function.

Most companies know that Dodd-Frank's bounty program offers significant rewards to whistleblowers who voluntarily provide original information about a possible violation of securities laws or regulations to the SEC, where that information leads to a successful SEC enforcement action totaling more than $1 million dollars.  But when the SEC finalized its regulations to implement the bounty program, it included exceptions that prohibited awards to certain individuals whose roles customarily give them information about company fraud and misconduct. 

Relevant here, those prohibitions included situations where the potential SEC whistleblower was "an officer, director, trustee, or partner of an entity and another person informed you of allegations of misconduct, or you learned the information in connection with the entity's processes for identifying, reporting, and addressing possible violations of law." 17 CFR § 240.21F-4 (b)(4)(iii)(A) (emphasis supplied).  Awards were also prohibited to individuals whose principal duties involve compliance or internal audit responsibilities, public accountants retained to perform the company's audit, and firms retained to investigate violations of law. 

The SEC's regulations, however, included "exceptions to the exceptions," which are central to the recent award.  Each of the exceptions vanishes where the SEC whistleblower—as the SEC press release puts it—"reports the information to the SEC more than 120 days after other responsible compliance personnel possessed the information and failed to adequately address the issue."  The SEC informant need not be the one who raised the concern inside the company to the company's legal or compliance function; he or she may simply have "received the information" if it was received under circumstances indicating that the entity's audit committee, chief legal officer, chief compliance officer (or their equivalents), or the informant's supervisor was already aware of the information. 

What this means is that company "bystanders" who observe an ongoing ineffective or delayed investigation of securities-related concerns may become whistleblowers entitled to a bounty, even where they learn of the information in their capacity as one who identifies or oversees compliance concerns.2 As Littler previously explained in a recent article,3 the SEC has also focused its viewfinder on other company compliance-related agreements and procedures (confidentiality agreements, separation agreements, codes of conduct, policies) that may dissuade individuals from communicating with the SEC.  Taken together, the SEC's messages should give every company more than enough reason to develop effective internal reporting mechanisms that promptly address internal concerns without fear of retaliation. 

What action is necessary to satisfy the SEC that a company "adequately" addressed an issue within 120 days will be a case-by-case determination.  One decision every company must face is whether to self-report an issue or complaint to the SEC.  Having sufficient information to make that informed decision will also require an effective and timely investigation.  

Recommendations for Employers

Given the SEC's increased focus on this area, it is recommended that employers work with knowledgeable counsel to review and upgrade their internal investigation systems to promptly and effectively address all internal concerns.  At a minimum, employers should: 

  1. Review and upgrade their internal investigation system to ensure they immediately process, promptly and effectively investigate, and expeditiously resolve all concerns reported through any of the company's internal channels (the company's hotline and "in-person" channels such as human resources, legal and management).
  2. Develop investigation guidelines and train investigation personnel. Conducting effective and lawful investigations is not a luxury for an organization; it is imperative. Well-designed investigation guidelines will better ensure that all important legal and compliance issues are identified, tracked, investigated in an appropriate and timely manner, and resolved.
  3. Develop escalation procedures that adequately inform oversight personnel of significant risks.  An effective communication system to the stakeholders of the employer's compliance program means that the right level of personnel, including regulators like the SEC when appropriate, are receiving the right information at the right time.  It also means that individuals who have no legitimate need to know about matters are not inadvertently provided such confidential information.
  4. Update and socialize the importance of "speak-up" and anti-retaliation policies to encourage internal reporting.
  5. Review compliance-related documents, confidentiality agreements, separation agreements, and employment agreements to ensure that these documents do not contain messages dissuading employees from communicating with federal agencies.


1. See Press Release 2015-45, Securities and Exchange Commission, Former Company Officer Earns Half-Million Dollar Whistleblower Award for Reporting Fraud Case to SEC (Mar. 2, 2015).

2. Of additional interest in this scenario is whether the officer has an obligation to turn over the reward to the employer, if, for example, he or she is subject to California law.  See CAL. LAB. CODE § 2860 ("Everything which an employee acquires by virtue of his employment, except the compensation which is due to him from his employer, belongs to the employer, whether acquired lawfully or unlawfully, or during or after the expiration of the term of his employment").

3. Gregory Keating and Harry Jones, SEC Targeting Broad Employee Confidentiality Clauses, Littler ASAP (Feb. 27, 2015).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
The Law Offices of Daniel J. Hurson, LLC
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
The Law Offices of Daniel J. Hurson, LLC
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions