September 3, 2010
My name is Mike Koehler, I am an Assistant Professor of Business Law at Butler University. I run the FCPA Professor Blog and my scholarship focuses on the FCPA and other anti-corruption laws and initiatives. Prior to academia, I was a lawyer in private practice focusing on the FCPA.
I respectfully submit the below comments in relation to Sections 922-924 "Securities Whistleblower Incentives and Protection."
The provisions are applicable to all securities laws violations, including the FCPA, and my comments are limited to application of the provisions in the FCPA context.
While the new provisions may or may not represent needed legislation as applied to non-FCPA securities law violations, I do not believe that the whistleblower provisions represent wise policy as applied to FCPA enforcement.
Why?
Quite simply the FCPA is enforced like no other securities law.
Against the backdrop of little substantive FCPA case law, the FCPA is enforced based largely on DOJ and SEC theories that have never been subjected to judicial scrutiny. For every FCPA enforcement action alleging conduct that all reasonable minds would agree violates the FCPA, there is seemingly three FCPA enforcement actions alleging conduct that many reasonable minds question whether the conduct at issue even violates the FCPA. Yet, these latter FCPA enforcement actions, notwithstanding the untested and dubious legal theories they are based on, are routinely settled by companies via a resolution vehicle that does not require the company to admit or deny the SEC's allegations - and indeed a resolution vehicle that is not subject to any meaningful judicial scrutiny.
Quite simply, a settled SEC FCPA enforcement action does not necessarily represent the triumph of the SEC's legal position over the company's (something even the SEC conceded to be true in the recent SEC v. Bank of America enforcement action), but rather reflects a risk-based decision primarily grounded in issues other than facts and the law.
It is simply easier and more cost-efficient for a company to settle an SEC FCPA enforcement (notwithstanding whatever legal theory it is based on) than to participate in long, protracted litigation with a government regulator. Ask any seasoned FCPA practitioner and, in a candid moment, they will tell you the same thing.
Against this backdrop, is it wise to award a whistleblower 10-30% of the fines, penalties and disgorgement the SEC recovers in an FCPA enforcement action? Is it wise to award a whistleblower in connection with an FCPA enforcement action when the contours of the FCPA largely remain undefined by the courts? It is wise to award a whistleblower when the company, for reasons other than law or fact, does not even mount a legal defense?
I submit that the answer to each of these questions is no.
An additional issue to consider is the following.
The whistleblower provisions may pit the whistleblower vs. the company in a strange, yet competitive, high-stakes game of "who has the fastest car" to Washington to disclose the conduct.
Simply put, if the whistleblower loses, the information he or she discloses will no longer be "original information" and thus no award.
If the company loses, the disclosure will no longer be "voluntary" and the hoped for credit under SEC policy guidelines, the DOJ's Principles of Prosecution of Business Organizations and the Sentencing Guidelines will disappear.
Against this backdrop, it may be that more conduct will be disclosed that may not even violate the FCPA because the risks of having the "slower car" are to great to pass up.
Lost in the entire analysis is whether the conduct at issue even violates the FCPA.
To restate my position, while the new provisions may or may not represent needed legislation as applied to non-FCPA securities law violations, I do not believe that the whistleblower provisions represent wise policy as applied to FCPA enforcement for the reasons stated above.