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The significance of the first whistleblower payment from the Securities and Exchange Commission this week wasn’t the size of the payout—a paltry $50,000—but rather the clear message the agency added to the memo line on the check: There’s much more to come. The SEC announced Wednesday that it made the first payout from its new whistleblower program under the Dodd-Frank Act to an unidentified person who helped stop a multi-million dollar financial fraud. The law prohibits the agency from releasing details that could identify the claimant. Sean McKessy, head of the SEC’s Whistleblower Office, said in a prepared statement that since the program was established in August 2011, his office has been receiving about eight tips a day. “The fact that we made the first payment after just one year of operation shows that we are open for business and ready to pay people who bring us good, timely information,” McKessy noted. Lyle Roberts, a partner and securities litigator in the Washington, D.C. office of Cooley LLP, said what’s important for general counsel to see are all the hints the SEC was dropping about future cases. “The bigger news out of this is the volume of calls they’re getting, and what type of calls those are,” Roberts said. He noted the agency has received nearly 3,000 tips in the first year of the program. “They claim a lot of these calls are of high quality and drop hints that unlike this first payout, which seems more of a vanilla case, some callers are corporate insiders who are aggressively giving them information about corporate problems,” he said. Roberts conceded there’s not a lot that a general counsel can do at this point—“other than making sure your internal compliance systems and internal whistleblowing systems are working [so as to avoid] being part of one of those tips.”   He wasn’t surprised that the payout was small, because the program is still young and there’s been little time to investigate a major case. “The real proof of the pudding will be in three years, say, when you might have a complex case that’s been fully investigated,” Roberts said. “That’s really where you’re going to see if the program is worth it.” But even this first payout could eventually reach a total bounty of $300,000 or more. The SEC explained that a court ordered more than $1 million in sanctions against the wrongdoer, of which so far $150,000 has been collected. The whistleblower is entitled to 30 percent of the sanctions, as they are collected. Also, the court is considering whether to issue a final judgment against other defendants in the matter. Any increase in the sanctions collected, or new sanctions ordered, will increase the payment to the whistleblower. And there’s another important message submerged in whistleblower statistics, according to James Curtis, a partner in Chicago office of Seyfarth Shaw and a member of its whistleblower legal team. Curtis said general counsel need to be mindful of the gap between the growing number of retaliation lawsuits brought by whistleblowers and the number of suits actually concluded. The problem, he said, is that this means the number of whistleblowers who remain on the job is growing significantly, creating an unsettling environment for employers. “It’s created a minefield out there for general counsel and they need to be real careful where they’re stepping,” he added. Curtis said in-house counsel need to put policies in place to deal with the increasing number of whistleblowers still employed in their ranks. For example, he asked, “How do you treat that whistleblower? How do you maintain the anonymity and assure he is treated fairly in the workplace? How do you investigate internally what whistleblowers allege, and how do you deal with them going forward?” He said a new Seyfarth Shaw study shows the number of whistleblower retaliation lawsuits filed went from 2,219 in 2008 to 2,648 in 2011; while during the same period completed cases increased only from 1,938 to 1,948—which is basically flat. Curtis noted that the Occupational Safety and Health Administration investigates all retaliation claims, even for SEC cases. “And in my talking with OSHA investigators, they are swamped,” he said. He said the law firm expects the number of unresolved whistleblower retaliation claims to continue climbing, especially after the publicity of the SEC’s first award, combined with the OSHA’s decision earlier this summer to form a Whistleblower Protection Advisory Committee to step up their own efforts.

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