SEC whistleblowers: How confidential, really?

by Kurt Schulzke

What level of confidence should prospective confidential* SEC whistleblowers have that their identities will remain forever undisclosed?  Answer: Next to zero.  Whistleblowers of all varieties — including SEC ones — should expect that eventually, one way or another, their role in blowing the whistle will come out.

Section 922(h)(2) of the Wall Street Reform and Consumer Protection Act offers “confidentiality” and “privilege” protections but they are narrowly defined and ambiguously limited.  Section 922(h)(2) reads as follows:

(A) IN GENERAL — Unless and until required to be disclosed to a defendant or respondent in connection with a proceeding instituted by the Commission or any entity described in subparagraph (D), all information provided to the Commission by a whistleblower–

(i) in any proceeding in any Federal or State court or administrative agency–

(I) shall be confidential and privileged as an evidentiary matter; and

(II) shall not be subject to civil discovery or other legal process; and

(ii) shall not be subject to disclosure under [the Freedom of Information Act].

First, the full parameters of “unless and until required to be disclosed” is unclear.  Certainly, disclosure under Section 922(d)(2)(B) (discussed below) is included in “required” disclosure but it is not so clear what other SEC proceedings may require disclosure or who has access to the information after it is disclosed.

Second, the list of agencies which can disclose the information in the context of their own “proceedings” is a long one.  It includes not only the U.S. Attorney General but also “appropriate” regulatory authorities, self-regulatory organizations, state attorneys general, “appropriate” state regulatory authorities, the Public Company Accounting Oversight Board, foreign securities authorities, and foreign law enforcement authorities.

Each of the identified domestic entities is required to maintain the whistleblower’s information “as confidential and privileged,” in accordance with subparagraph (A).  However, the foreign entities must merely “maintain such information in accordance with such assurances of confidentiality as the Commission determines appropriate.” Disclosure to any of these entities — which the SEC is empowered to make at any time after it receives the information from the whistleblower — could result in intentional or inadvertent publication of the whistleblower’s identity.

Finally, as hinted above, Section 922(d)(2)(B) requires that “prior to the payment of an award, a whistleblower shall disclose the identity of the whistleblower and provide such other information as the Commission may require.”  There is no indication on the face of the statute to whom whistleblowers “shall disclose” their identities.

Even if the statutes and regulations were to uniformly and permanently protect whistleblower identities, the practical realities of the investigative process virtually guarantee their disclosure.  Once investigators begin investigating allegations sufficiently specific to justify their attention, it usually becomes obvious who blew the whistle.  The only possible exception would be where the whistleblower stands so far outside the defendant organization that confidentiality is not necessary.

Suffice to say, the disclosure possibilities are almost endless.  Whistleblowers should expect to be disclosed and should prepare accordingly.

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*SEC whistleblowers can file their claims with the SEC either confidentially or openly.  Confidentiality, however, is available only to those who file through legal counsel.

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