New SDNY Pilot Program complements existing US whistleblower protections

The US Attorney for the Southern District of New York (SNDY) has launched a Whistleblower Pilot Program which aims to incentivize early and voluntary disclosure of criminal conduct by individuals for non-violent offenses involving financial crimes and/or corruption. 

Launched on January 10, 2024, the Pilot Program provides incentives to individuals who voluntarily self-disclose information through non-prosecution agreements when certain conditions are met. It offers additional protections to whistleblowers reporting fraud that were not previously covered by other whistleblower regulations. 

In this article, we analyze how the Pilot Program complements the current whistleblower protections in the US.

Existing whistleblower protections

The whistleblower programs of the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission’s (CFTC) provide protections and monetary awards to individuals who voluntarily report violations of federal securities laws to the SEC and violations of the Commodity Exchange Act (CEA) to the CFTC that lead or significantly contribute to a successful government action. The programs offer broad protection primarily those who blow the whistle on public companies and securities or commodities traders. They also prohibit any action taken to impede the whistleblower from communicating with SEC/CFTC about possible violations as well as retaliation by employers against employees who come forward with information about possible violations.

The qui tam provisions of the False Claims Act (FCA) allow both individuals and entities with knowledge of fraud against the US government to file a lawsuit under seal on behalf of the United States, and, where the case is successful, to share in the government’s monetary recovery. The FCA provides a comprehensive set of protections primarily to those who blow the whistle on government contractors and other participants to government payment programs. It prohibits employers from terminating, demoting, or harassing any employee who has exposed corporate wrongdoing by filing a qui tam case and entitles those whistleblowers retaliated against to double back pay, reinstatement, and reimbursement for their litigation costs. 

Whistleblowers in these programs can receive up to 30 percent of monetary sanctions in a successful enforcement action.

SDNY Pilot Program guarantees criminal immunity for culpable whistleblowers meeting its requirements

The Pilot Program offers a new area of protection for individuals reporting for non-violent offenses involving federal financial crimes and/or corruption committed by or through “public or private companies, exchanges, financial institutions, investment advisers, or investment funds involving fraud or corporate control failures or affecting market integrity, or criminal conduct involving state or local bribery or fraud relating to federal, state, or local funds.” Individuals reporting such offenses are automatically eligible for the protection of a non-prosecution agreement, assuming the following requirements are met: 

1. The conduct has not been previously known by the US Attorney’s Office
2. The disclosure is made voluntarily and not in response to a government inquiry 
3. Full and substantial cooperation with the investigation and prosecution  
4. The whistleblower cannot be an elected or appointed official; a federal official or agent; an individual who otherwise is or expected to become of “major public interest”; or the chief executive officer or equivalent of a public of private company and 
5. The whistleblower cannot have engaged in violent criminal conduct or have a criminal conviction involving fraud or dishonesty. 

Notably, the SDNY Pilot Program expressly excludes from its scope individuals who report information relating to violations of the Foreign Corrupt Practices Act or violations of federal or state campaign financing laws, federal patronage crimes, corruption of the electoral process, or bribery of federal officials.

Prosecutors have discretion to extend a non-prosecution agreement to individuals who do not meet these requirements, considering, among other things, the following factors: 

1. Whether and to what extent the criminal conduct had previously been made public or was previously known to SDNY 
2. Whether the individual disclosed the criminal conduct voluntarily or in response to government inquiry or reporting obligation
3. The extent to which the individual is able to provide substantial assistance in the investigation and prosecution of one or more equally or more culpable persons and the individual’s culpability relative to others
4. Whether the individual has truthfully and completely disclosed all criminal conduct in which the individual has participated and of which the individual is aware 
5. The extent to which the individual occupies any official or leadership position or other position of public or private trust 
6. The adequacy of non-criminal sanctions, including but not limited to remedies imposed by civil regulator and 
7. The individual’s criminal history.

Unlike the existing whistleblower protections, the Pilot Program does not contemplate monetary awards or recovery for those individuals who come forward and meet SDNY’s requirements for DPA eligibility – nor does it provide for any protections against possible retaliation from the individuals’ employers. However, it removes the threat of criminal prosecution for culpable whistleblowers reporting misconduct involving a company subject to SDNY’s jurisdiction. In short, culpable whistleblowers reporting violations of federal securities laws, the CEA, or FCA committed by or through companies subject to SDNY’s jurisdiction are now afforded immunity, assuming they meet the Pilot Program requirements.

Key takeaways

The SDNY Pilot Program will likely cause an increase in whistleblower reports for conduct that takes place within the SDNY’s jurisdiction. Companies – including private companies that are not within the scope of the existing whistleblower protections (ie, SEC, CFTC, and FCA) – should regard this information as an opportunity to reevaluate and strengthen their internal compliance practices to ensure that misconduct is detected, investigated and remediated. This includes, among other things, ensuring that employees have adequate reporting channels to anonymously escalate misconduct and that such reports are investigated promptly. Attention should be paid to ensure that employee confidentiality agreements are compliant with whistleblower laws and anti-retaliation protections are in place.

Companies that are not within the scope of SDNY’s jurisdiction should also consider doing the same, as it is likely that other US Attorney’s Offices throughout the country will implement similar whistleblower programs.

Learn more about the implication of the SDNY Pilot Program by contacting any of the authors or your usual DLA Piper relationship attorney.