An Interview with Jordan Thomas

Interview by Ethisphere

Ethisphere recently spoke with Jordan Thomas, partner at Labaton Sucharow LLP and formerly Assistant Director at the Securities and Exchange Commission, about the SEC’s whistleblower bounty program and what should keep today’s ethics and compliance officers up at night.

From your experience within the Division of Enforcement at the SEC, what are one or two aspects of a compliance or ethics program most often overlooked by companies?

JT: As a first responder to corporate scandals, I have come to believe that wrongdoing is rarely caused by “rogue” employees, insufficient compliance resources, inadequate policies and procedures or compliance personnel that lack vigilance—as is commonly thought. In my experience, I have found that big misconduct often results from a long chain of little mistakes; one breakdown in ethical judgment cascading to another breakdown and then another.

Ultimately, I have concluded that the most common cause of significant corporate wrongdoing is that the organizations involved lacked a culture of integrity and discouraged their employees from speaking up. Notwithstanding this fact, too many organizations focus almost exclusively on the mechanics of compliance and the response to misconduct—not establishing a culture of integrity that would deter or prevent misconduct in the first place.

What is one piece of advice you have for readers of Ethisphere as far as improving a compliance program that helps to create a strong culture of ethics across an organization?

JT: Take time to instill a sense of community in your workplace. After all, ethics is a natural outgrowth of a healthy work environment where employees have a sense of belonging and are concerned about the well-being of their colleagues, customers and the organization as a whole. This may sound a bit touchy and feely but I can tell you that if your employees are not emotionally and intellectually connected to their work, they are far more likely to engage in unethical behavior because they are not constrained by the potential impact of their misconduct on others.

As a prominent whistleblower counsel, why do you think that some employees choose to report externally versus internally?

JT: As a preliminary matter, my own experience and surveys have shown that the vast majority of whistleblowers report potential wrongdoing internally first—often to their direct supervisors.

In fact, I have found that the most common scenario among whistleblowers is that when they report wrongdoing internally, their concerns are ignored or dismissed and they perceive that they are retaliated against. Accordingly, every responsible organization would be wise to pay more attention to initial internal reporting and vigilantly ensure that those who report wrongdoing feel valued and respected—even if their underlying concerns are misplaced.

In Ethisphere Magazine, we often ask the subjects of our interviews the question, “What keeps you up at night?” Can you talk about what kept you up at night during your tenure at the SEC?

JT: At the Commission, especially after the Madoff scandal, I was always very concerned about missing a significant securities fraud case and investors being harmed. Although the initial triage process has been dramatically improved in recent years, it is a continuing challenge for the agency because it receives approximately 30,000 complaints, tips and referrals a year and can only conduct about 2,000 investigations at any one time—and those investigations can take two to four years to complete.

Similarly, based upon your unique perspective as a former Assistant Director in the Enforcement Division of the SEC and SEC Whistleblower Advocate, what do you think should keep leaders of responsible organizations up at night?

JT: If I were the Chief Compliance Officer, I would be hyper focused and very concerned about what appears to be a breakdown in trust between employees and their employers. Numerous studies, including my law firm’s annual Wall Street survey, have shown that employees are the most likely group to detect wrongdoing yet are reluctant to report problems because they doubt their organizations will act appropriately and fear that they will be retaliated against. Obviously, these findings are inconsistent with a culture of integrity and seriously undermine the effectiveness of an organization’s other compliance programs and initiatives.

Is there one area of enforcement that you predict will become more significant than it is today over the next couple years?

JT: In my practice, the most common violations that I see involve trading, foreign bribery, and financial fraud. In light of the Financial Fraud Task Force recently established by Chairman White, I expect that the latter area is going to get a great deal of attention in the next couple of years.

It has been more than three years since the Dodd-Frank Wall Street Reform and Consumer Protection Act established the SEC Whistleblower Program, what are some of the ways things have changed?

JT: As you know, the SEC Whistleblower Program, which provides eligible whistleblowers the ability to anonymously report possible securities violations with significant employment protections and monetary awards, effectively has deputized every company employee, vendor, customer (and their second cousins) to serve as the agency’s eyes and ears. As a result of this important program, the probability of detection is dramatically higher than ever before and many organizations have redoubled their efforts to maintain effective compliance and integrity programs.

What is the outlook of the SEC Whistleblower Program over the next 3 – 5 years?

JT: The outlook for the program is bright. Whistleblowers are breaking their silence and reporting a wide variety of significant possible securities violations to the SEC. In the coming years, based upon my work at the SEC and as a whistleblower advocate in private practice, I predict that many of the SEC’s most significant cases will be the result of SEC whistleblowers. As awareness of the program grows and the cases in the pipeline mature, enforcement records are also likely to be broken.

Expert Biography

Jordan A. Thomas is a partner at Labaton Sucharow LLP and concentrates his practice on investigating and prosecuting securities fraud on behalf of whistleblowers and institutional clients. Thomas was formerly Assistant Chief Litigation Counsel in the Division of Enforcement of the SEC.