Big news from the Securities and Exchange Commission this afternoon: Sean McKessy, the agency’s first and only director of the Office of the Whistleblower, is stepping down after five years on the job.
The SEC’s prepared statement says McKessy will leave by the end of July, and does not say what he may do next. His deputy, Jane Norberg, will serve as acting chief after he departs.
McKessy’s influence on corporate compliance in the last five years is significant. He joined the Office of the Whistleblower in February 2011, only months after the Dodd-Frank Act became law and empowered the SEC to grant whistleblower rewards. As its first chief, McKessy established how the Whistleblower Office would work internally and how it would portray itself to the corporate compliance community overall—including to many compliance officers in the private sector worried that the prospect of whistleblower rewards would tempt employees to stop reporting misconduct allegations internally.
During McKessy’s tenure, the SEC has reviewed more than 14,000 tips, and awarded more than $85 million to 32 whistleblowers. Those tips led to SEC enforcement actions that resulted in more than $500 million in sanctions, the SEC said, including $346 million in disgorgement and interest to harmed investors. The agency also brought enforcement actions against companies with “pre-taliation” policies that punished employees for speaking to the SEC.
The SEC’s first whistleblower award (of $50,000) was issued in August 2012. Since then the Office of the Whistleblower has only gained more and more steam; it has issued nearly $26 million in awards in the last two months alone. The largest single award came in 2014, when the agency gave more than $30 million to an overseas tipster.
My own personal observations: I remember when Dodd-Frank became law, and whistleblower rewards along with it. At the time (summer and fall 2010), plenty of compliance officers worried that the SEC would eclipse all their efforts to encourage internal reporting of misconduct. That fear never really emerged into a substantive threat to internal reporting—or at least, compliance officers tell me that they still have plenty of internal reports to keep them busy. And let’s remember those numbers: 14,000 tips, 32 rewards. That’s a reward rate of 0.23 percent, or one reward for every 437 tips McKessy received.
Then again, over the last five years, the SEC has also progressively expanded the scope of protected whistleblower activity. Pre-taliation clauses are now forbidden. In May, the agency awarded $3.5 million to a whistleblower at least partly because the person’s whole industry blacklisted him—that is, the worker was compensated for retaliation other companies imposed on him for speaking up.
What will McKessy do next? I have no idea, but he had experience as an SEC staff attorney in the 1990s, plus experience on the corporate side at Altria, AOL, and Caterpillar building compliance programs in-house. Then he built the Office of the Whistleblower program—and whether you like the office or not, McKessy did a good job at running it.