Self-Reporting Companies Can Lower Fines by Incentivizing Whistleblowers

The Securities and Exchange Commission (SEC) runs a whistleblower rewards program, which has encouraged over 50,000 tips in the last decade. This has resulted in collecting nearly $5 billion in fines and penalties from public companies. However, companies can reduce their fines by incentivizing whistleblowers to report violations internally. Instead of waiting for the SEC to take the case, public companies can avoid prosecution, fines and penalties.

Advantages of self-reporting

Self-reporting violations can help lower fines and penalties, and avoid the prosecution that would happen if the employees reported directly to the SEC instead. This is because self-reporting gives companies an advantage when negotiating with SEC regulators—something that the Justice Department has memorialized recently.

When a company self-reports, they may receive a declination: a decision by a prosecutor not to pursue charges. This also reduces the company’s legal costs and lowers the risk of lawsuits like shareholder lawsuits. On balance, obtaining a declination can save millions of dollars. Plus, the DOJ has declared that self-reporting companies can reduce their penalties by up to 50 percent.

Similarly, regulatory settlements often require a monitorship. This is when an independent third party is appointed by the DOJ to oversee compliance with the law, which is expensive and time-consuming. When a company encourages internal whistleblowing and self-reporting, it shows that the company already has their own compliance reporting system.

Finally, the authorities are more likely to limit the scope of the investigation when a company self-reports.

Self-reporting considerations

To ensure that whistleblowers report internally, a company should consider the benefits for an employee whistleblowing to the SEC (anonymity, protection from retaliation, significant financial reward and legal representation from whistleblower attorneys, who tend to work on contingency), and offer similar financial rewards and protections.

For more information about internal whistleblower reporting, a seasoned whistleblower attorney at Kardell Law Group can help. Call today for a consultation.