Former Commissioner of the Securities and Exchange Commission (SEC), Allison Herren Lee, who currently serves Of Counsel at Kohn, Kohn & Colapinto, spoke on August 31 at a “Lunch ‘n Learn” session hosted by The Anti-Fraud Coalition (TAF).
Throughout her tenure as Commissioner and her service as Acting Chair, Lee was a champion for stronger whistleblower protections, individual accountability for violations of securities laws, and ESG issues. In March, Lee joined Kohn, Kohn & Colapinto, where she represents whistleblowers in cases related to securities, commodities, and anti-money-laundering laws.
At the Lunch ‘n Learn, Lee reminded participants, who consisted of whistleblower attorneys and experts in financial fraud, why whistleblowers are so important to the Commission’s mission and what whistleblower attorneys can do to help the visibility and processing times of their cases.
Whistleblowers, Lee emphasized, are vital to the mission of the SEC because they can implicate individuals rather than just companies. Whistleblowers understand the intricacies of the division of responsibilities within a company. They are often party to confidential information or conversations in which fraudsters reveal the intentionality behind their schemes.
For this reason, whistleblowers are critical in establishing the intent of wrongdoing. “That is one of the biggest hurdles that the staff faces when it’s looking to put together a package of charges. It’s very hard to charge individuals because it’s very hard to show the level of intent that the law requires. Whistleblowers are key to that,” Lee explained.
Lee also outlined what makes an effective whistleblower tip and what the SEC looks for in disclosures. She provided three questions to help attorneys and whistleblowers assess the effectiveness of their tips: (1) Does the tip contain factual allegations that, if true, would meet the elements of securities fraud or some other relevant violation of securities law? (2) Does the tip implicate significant harm to either investors or the market? (3) Does the tip fit within a specific enforcement priority or advance the mission in some specific way that resonates with the current leadership at the SEC?
Priorities of the Commission
The second portion of Lee’s talk focused on identifying the Commission’s enforcement priorities. Lee suggests that there are myriad ways to glean an understanding of SEC enforcement priorities: speeches by SEC Chair Gary Gensler and Director of Enforcement Gurbir Grewal, sweeps, risk-based initiatives, press releases, the creation of task forces, and updates from the Division of Exams (formerly called the Compliance Division).
According to Lee, the current priorities of the Commission include crypto and cybercrime, ESG Disclosure and Greenwashing, Reg BI (Regulation Best Interest), and private funds.
Aside from paying attention to SEC priorities, Lee advised that whistleblowers and attorneys always consider whether a tip at one entity might be endemic to an entire industry. Sometimes, a tip indicates a larger market problem, which is extremely useful for the SEC.
Lee concluded the conversation by reminding whistleblower advocates that they can support the SEC in its efforts to reduce processing times of cases and lag times between decisions and awards by advocating for legislation that allocates more funding to this goal.
In June, Lee authored a piece for the Harvard Law School Forum on Corporate Governance, calling for the passage of the SEC Whistleblower Reform Act of 2023. The bipartisan bill contains several reforms to improve the efficacy of the SEC Whistleblower Program.