Unexpected Consequences from the Pandemic Shutdown – A Spike in Whistleblower Complaints

There’s a curious byproduct from the COVID-19 economic crisis and business shutdown – a sharp increase in SEC whistleblower complaints and lawsuits filed by workers against employers. From mid-March to mid-May, the SEC reported approximately 4,000 whistleblower complaints, a 35 percent increase from the previous year.

While we can’t draw a straight line from the historic unemployment numbers caused by the pandemic shutdown to an increase in whistleblower complaints, history tells us that whistleblower claims and claims against businesses tend to increase during economic downturns. We saw this in 2015 when the collapse in oil prices resulted in widespread energy sector layoffs. FLSA wage-and-hour lawsuits filed by employees against businesses increased dramatically then, just as they are now.

Also fueling this trend, many who find themselves suddenly unemployed may feel they have less to lose by speaking out. Even though the law protects whistleblowers from reprisal, there’s a widespread belief among workers that whistleblowers experience retaliation for coming forward with accusations about their employer. This initial spike in filings may just be the first wave because whistleblower claims can be sealed from the public initially.

Struggling unemployed workers may also be enticed by the potential for whistleblower awards or compensation from lawsuits. A provision in the Dodd-Frank Act allows whistleblowers to receive up to 30 percent of the monetary recovery. The SEC recently paid out a record $50 million to a single whistleblower. In all, the commission has paid out more than $500 million, including more than $100 million in this fiscal year alone.

Another explanation is that there may simply be more fraud and waste to report right now – from businesses taking shortcuts to balance the books, to coronavirus-related insider trading, stock scams, and compliance issues like fraudulently filing for federal PPP financial assistance.

Hold on tight. With Federal Reserve Chairman Jerome Powell estimating recently that unemployment will be as high as 6.5 percent at the end of 2021, we could be seeing just the first wave.

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