Thanks to the financial rewards offered by the SEC, CFTC, DOJ, IRS and other whistleblower programs, trustees and pension boards today—for the first time—have a fiduciary obligation to report wrongdoing to regulators and law enforcement. If they don’t, they may be shortchanging beneficiaries and participants.
It is well settled law that trustees, pension boards and others who are responsible for the care of assets belonging to others have an obligation—a fiduciary duty—to protect assets and maximize returns related to those assets.
So, if someone steals from the trust or pension, the overseers can’t turn a blind eye—they must seek to recover the monies wrongfully taken. That’s the duty to protect.
Obviously, chasing thieves via lawsuits and other strategies cost money and the fiduciaries must be prudent in using trust or fund assets for such purposes.
The duty to maximize returns means that the maximum should be pursued when dollars are committed to a recovery effort.
Today, thanks to the financial rewards offered by the SEC, CFTC, DOJ and other whistleblower programs, it is possible for trusts and pensions to be awarded far more money from these agencies than their individual losses. That is, if the wrongdoing is systemic, causing widespread harm and results in a sizable settlement or fine, up to 30 percent of the monies paid to the government can be awarded to the whistleblower. In other words, whistleblower awards can be exponentially more rewarding than civil litigation alone.
Recently I was asked whether trusts and pensions—regardless of whether they seek a civil recovery—have an obligation to report wrongdoing to authorities.
In my 35 years experience investigating over $1 trillion in trusts and retirement plans, I can tell you that these funds almost never report wrongdoing. Often, the reason for not reporting is the (generally unwarranted) fear that overseers may be culpable for having failed to detect the scam earlier.
We could debate whether fiduciaries in the past may or may not have had a legal, or ethical, obligation to report wrongdoing impacting others to authorities.
Today, however, any trustee or pension board which fails to blow the whistle on known systemic scamming risks shortchanging beneficiaries and participants out of a potential award for the trust or fund.
Thankfully, the financial incentives these whistleblower programs now provide compel fiduciaries to do what’s right not only for beneficiaries and participants but investors globally. Under the appropriate circumstances, there is a fiduciary duty to blow the whistle.