CFTC Releases 2020 Annual Report on its Whistleblower Program

The Commodity Futures Trading Commission (“CFTC”) recently released its 2020 Annual Report on the status of its whistleblower program for the fiscal year ending on September 30, 2020.

The report, prepared by the CFTC’s Whistleblower Office (“WBO”), contains statistics on the tips received and awards granted during the previous fiscal year, describes the WBO’s recent outreach and education initiatives, and provides an update on the CFTC Customer Protection Fund, which finances these efforts.

Under the CFTC’s whistleblower program, whistleblowers who voluntarily provide original information about violations of the Commodity Exchange Act are eligible to receive between 10 and 30 percent of resulting sanctions that exceed $1 million.  Eligible sanctions can be collected via CFTC enforcement actions or related actions by other federal regulators.

Whistleblower Tips Received

In FY 2020, the WBO received a record high of 1,030 whistleblower tips and complaints, which represents an increase of 126% over the 455 tips received in FY 2019, as well as an increase of 36% over the previous record of 760 tips in FY 2018.  These tips and complaints concerned activities such as failures to supervise; record keeping or registration violations; swap dealer business conduct; wash trading; solicitation, misappropriation, and other types of fraud; use of deceptive or manipulative devices in trading; as well as spoofing and other forms of disruptive trading or market manipulation.

The WBO also received 191 non-whistleblower tips, including 64 referrals from the Securities and Exchange Commission.

Whistleblower Awards Granted

During FY 2020, the CFTC issued 11 whistleblower awards to 16 individuals, several of whom contributed to the same enforcement action.  The CFTC also denied 80 award applications, primarily because they did not relate to a qualifying sanction obtained by the CFTC or another regulatory agency.

The 11 awards combined for a total of approximately $20 million, down from the $75 million issued last year in just 5 whistleblower awards.  Since the inception of the Whistleblower Program in FY 2012, the CFTC has issued 25 whistleblower awards for a total of more than $120 million.  The actions associated with these awards have resulted in nearly $1 billion in sanctions.

The awards issued during FY 2020 illustrate that the award amount is determined not just by the size of the sanction collected, but also by several additional considerations.  One award was reduced because the whistleblower declined to provide a declaration in support of the CFTC’s enforcement action; another award of $250,000 was reduced because the whistleblower did not promptly report the violations.  Multiple whistleblowers can report the same illegal activity: an award of more than $2 million was shared between four whistleblowers, who had jointly submitted a tip to the CFTC and “individually provided significant, ongoing assistance” to the investigation.  Another award was shared by two whistleblowers, one based in the US, who first alerted the CFTC to the fraudulent activity, and the other based overseas, who provided additional information, including about efforts by the perpetrators to avoid detection.

SEC Announces Record-Breaking $114 Million Award to Whistleblower

On October 22, 2020, the SEC announced an award of over $114 million to a whistleblower who, after reporting internally to their employer, provided the SEC with information and assistance that led to the successful enforcement of SEC and related actions.  The $114 million award consists of an approximately $52 million award in connection with the SEC case and an approximately $62 million award arising out of the related actions by another unidentified agency.  The combined $114 million is the largest amount ever awarded under the SEC’s whistleblower program and far surpasses the next-largest award of $50 million made to an individual in June 2020.

SEC Chairman Jay Clayton noted that “[w]histleblowers make important contributions to the enforcement of securities laws and we are committed to getting more money to whistleblowers as quickly and as efficiently as possible.”  Jane Norberg, Chief of the SEC’s Office of the Whistleblower, added, “[t]he actions of the whistleblower awarded today were extraordinary,” explaining that “[a]fter repeatedly reporting concerns internally, and despite personal and professional hardships, the whistleblower alerted the SEC and the other agency of the wrongdoing and provided substantial, ongoing assistance that proved critical to the success of the actions.”

Since the inception of the whistleblower program in 2011, the SEC has awarded approximately $676 million to 108 individuals.  The order granting this record-breaking award can be accessed here.

Ga. District Court Dismisses Dodd-Frank and SOX Whistleblower Claims

On September 30, 2020, the U.S. District Court for the Northern District of Georgia granted an employer’s motion to dismiss a Dodd-Frank whistleblower claim on the ground that the alleged whistleblower did not complain to the SEC prior to his termination.  The court also granted Plaintiff’s SOX whistleblower claim as against three affiliates of Plaintiff’s employer, holding that Plaintiff had failed to exhaust administrative remedies as to those defendants because he did not specify the allegedly wrongful conduct attributable to each of them in his administrative complaint.  Slawin v. Bank of America Merchant Services., et al., No. 19-cv-04129 (N.D. Ga. Sept. 30, 2020).


Plaintiff, a former Vice President and Operations Control Officer at the Company, filed a whistleblower retaliation action against Company, its parent, and two joint venturers (the “non-Company Defendants”), alleging his employment was terminated in retaliation for his complaints regarding Company’s purported failure to comply with Payment Card Industry (“PCI”) standards.  Specifically, he alleged that the Company, an entity that provided payment processing services to other companies and municipalities, not only failed to handle consumers’ personal data in compliance with PCI standards, but also knowingly misled its customers into believing that it was, in fact, PCI compliant.  Following his termination, Plaintiff filed whistleblower retaliation complaints with the SEC and OSHA, alleging wrongful conduct by the Company but only naming the remaining defendants in the context of explaining their relationship to the Company.

All four Defendants moved to dismiss, with the Company moving as to Plaintiff’s Dodd-Frank and CFPA claims, and the three remaining defendants seeking dismissal of the entire complaint as against them. Specifically, Defendants argued that Plaintiff’s Dodd-Frank claim should be dismissed because he failed to make a report to the SEC prior to his termination, and his CPFA claim should be dismissed because Defendants did not qualify as “covered persons” or “service providers” under that statute because they did not provide services to “customers.”  The three non-Company Defendants further argued that Plaintiff’s SOX and CFPA claims should be dismissed as to them because Plaintiff failed to exhaust his administrative remedies by not attributing any alleged conduct to them in his SEC or OSHA complaints.


Relying on the Supreme Court’s decision in Digital Realty Tr., Inc. v. Somers, 138 S. Ct. 767 (2018) (our post on that decision is here), the court held that because Plaintiff did not provide information to the SEC before his termination, he did not qualify as a “whistleblower” under Dodd-Frank at the time of the alleged retaliation.  Accordingly, the court dismissed Plaintiff’s Dodd-Frank claim as to all Defendants.

Similarly, the court granted the non-Company Defendants’ motion as to Plaintiff’s SOX claim, holding that Plaintiff had failed to exhaust his administrative remedies as to them.  Specifically, relying on the Eleventh Circuit’s unpublished decision in Smith v. Psychiatric Sols., Inc., 358 Fed. Appx. 76, 78 (11th Cir. 2009), in which that court affirmed a decision finding lack of exhaustion against defendants not named as respondents in the administrative complaint.  After specifically noting that it did not read Smith as adopting a per se rule requiring naming a SOX defendant as a respondent in an administrative complaint to exhaust remedies as to that defendant, the court noted that the few references to these defendants in Plaintiff’s OSHA Complaint were insufficient.


This decision serves as a reminder that Dodd-Frank’s anti-retaliation provisions are only triggered where a plaintiff makes a pre-termination external report to the SEC.  It also highlights an avenue to seek dismissal of a SOX whistleblower retaliation complaint naming multiple corporate defendants where the plaintiff does not sufficiently specify in an administrative complaint alleged wrongful acts committed by each defendant.

SEC Awards Almost $30 Million to Two Insider Whistleblowers

On September 30, 2020, the SEC’s Office of the Whistleblower announced multi-million dollar awards to two whistleblowers who provided the SEC with information that assisted the agency in bringing a successful enforcement action.  (The order granting the awards can be accessed here.)  The larger of the two awards, $22 million, is one of the SEC’s highest awards to date and was awarded to an insider who was the first to alert the SEC of potential wrongdoing, persistently internally reported and elevated their concerns in an effort to remedy the conduct, and provided substantial, ongoing assistance to the SEC during the investigation.  The second award of $7 million was given to an insider who provided additional valuable information.

Jane Norberg, Chief of the SEC’s Office of the Whistleblower, said in a press release that “[t]he information and assistance provided by today’s whistleblowers helped the agency return tens of millions of dollars to harmed retail investors.”  She added, “[w]e hope that awards like the ones issued by the Commission today will continue to incentivize individuals to come forward and report high-quality tips to the SEC.”

Since the inception of the whistleblower program in 2011, the SEC has awarded approximately $557 million to 102 individuals.

SEC Amends Whistleblower Program Rules

On September 23, 2020, by a vote of 3 to 2, the U.S. Securities and Exchange Commission announced the adoption of a final rule implementing several changes to its whistleblower program, citing the need to “provide greater clarity to whistleblowers and increase the program’s efficiency and transparency.”  The following addresses the key provisions of the final rule.

The Commission Clarifies Its Award-Setting Procedures

One of the most notable provisions of the final rule changed how the Commission sets award amounts.  Under the terms of the Dodd-Frank Act which established the whistleblower program, awards must equal between 10 percent and 30 percent of the total monetary sanctions recovered as a result of the information provided by the whistleblower, as determined by the award criteria outlined in 17 C.F.R. § 240.21F-6.

Presumption of the Statutory Maximum for Awards Less than $5 Million

For awards where the statutory maximum of 30 percent is $5 million or less, the final rule adopted a presumption that the whistleblower will receive the maximum award, so long as none of the negative award-reducing criteria in Rule 21F-6(b) are present.  The Commission noted that approximately 75% of all awards have been for $5 million or less, and thus, this presumption should provide increased transparency and streamline the award determination process.

Continued Discretion in Setting Awards More Than $5 Million

For awards expected to exceed $5 million, the Commission’s original proposal in July 2018 included a separate review process allowing it to make additional downward adjustments to “exceedingly large awards” of at least $30 million to an individual whistleblower.  The final rule removed this process, but the Commission noted that it already possessed broad discretion to adjust award amounts under the existing award criteria in Rule 21F-6.  The Commission further clarified that while it would evaluate only the statutory award criteria in setting award amounts, consistent with its long-standing practices, this evaluation would consider not just the percentage of monetary sanctions captured by the award but also the total dollar amount of the award.  One rationale provided by the Commission was that “actual dollar figures—not abstract percentages—are most likely to advance the whistleblower award program’s goal of incentivizing potential whistleblowers.”

However, the Commission noted that based upon historical application of the award criteria, if none of the negative award-reducing criteria specified in Rule 21F-6(b) are present, the award amount should be in the top third of the award range.

Allowing Awards for Additional Forms of Dispute Resolution

To qualify for an award, information provided by a whistleblower must lead to the collection of monetary sanctions through either: 1) a judicial or administrative enforcement action by the Commission; or 2) a related action brought by the U.S. Attorney General, another regulatory authority, a self-regulatory organization, or a state attorney general in a criminal case.  The final rule added additional types of Commission enforcement actions that will now be eligible for a whistleblower award: 1) deferred prosecution agreements; 2) non-prosecution agreements; and 3) settlement agreements outside the context of a judicial or administrative proceeding.  The amount of the awards stemming from these alternative resolutions will still consist of a percentage of the money recovered, as determined by the standard award-setting process.

Prohibiting Multiple Recoveries under Other Whistleblower Programs

The final rule introduced a provision clarifying that an action by a separate regulatory authority does not qualify as a related action under the Commission’s whistleblower program if the Commission determines that there is a different award program (such as the CFTC whistleblower program) that more appropriately applies to the separate regulatory action.  Furthermore, this “multiple-recovery” rule also precludes whistleblowers who have been denied awards by other whistleblower programs from re-adjudicating issues before the Commission that were already resolved against them by the other program and requires whistleblowers to waive their claims to awards under other programs prior to accepting an award from the Commission.

Clarifying the “Independent Analysis” Requirement

Section 21F of the Exchange Act limits whistleblower awards to individuals who, among other requirements, submit “original information” derived from the independent knowledge or analysis of the whistleblower.  Though “original information” can be based on an independent analysis of information from publically available sources, the Commission has always required that the analysis “reveal information that is not generally known or available to the public.”

The final rule sought to clarify this requirement by providing that the criteria of “independent analysis” is satisfied where: “1) the whistleblower’s conclusion of possible securities violations derives from multiple sources, including sources that, although publicly available, are not readily identified and accessed by a member of the public without specialized knowledge, unusual effort, or substantial cost; and 2) these sources collectively raise a strong inference of a potential securities law violation that is not reasonably inferable by the Commission from any of the sources individually.”  The Commission concluded that this change was needed to address uncertainty regarding the prior requirements, encourage more high-quality submissions, reduce the volume of non-meritorious claims, and increase the efficiency of the whistleblower program.


The Commission Establishes a Uniform Definition of “Whistleblower” to Comport with the U.S. Supreme Court’s Decision in Digital Realty Trust

The final rule introduced changes to comport with the U.S. Supreme Court’s decision in Digital Realty Trust, Inc. v. Somers, 138 S. Ct. 767 (2018).  (Our post on that decision is here; our post on the SEC’s initial proposal more than two years ago to amend the whistleblower rules in response to Digital Reality is here.)  The final rule provided a uniform definition of “whistleblower” to be applied in every provision of the statute.

Though the Court in Digital Realty held only that a whistleblower must make a report to the Commission to trigger Dodd-Frank’s anti-retaliation provisions, the final rule went one step further by requiring that the report be made in writing.  The Commission acknowledged the concerns of commentators and its dissenting colleagues who argued that requiring a written report was too restrictive, but determined that the requirement would present only a “minimal burden” given the multiple means of transmission available (e.g., email, online submission, fax, and mail) while facilitating a more efficient and accurate review by Commission staff.

Under the new definition, for all provisions of Exchange Act Section 21F, including the award program, heightened confidentiality requirements, and anti-retaliation protections, a whistleblower is defined as “i) an individual, ii) who provides the Commission with information ‘in writing’, iii) that relates to a possible violation of the federal securities laws (including any law, rule, or regulation subject to the jurisdiction of the Commission) that has occurred, is ongoing, or is about to occur.”

The final rule also codified the existing requirement that to be eligible for an award or to obtain heightened confidentiality protections, in addition to making a report, a whistleblower must also submit information on Form TCR or through the SEC’s online portal within 1) thirty days of first providing information to the SEC, or 2) thirty days of receiving actual or constructive notice of this requirement.

The Commission Implements New Tools for Processing Applications

In line with the Commission’s goal of improving its efficiency in processing award applications, the final rule provided that an applicant may be permanently barred from seeking an award if the applicant submits three or more frivolous award applications.  For the first three applications determined to be frivolous, the Office of the Whistleblower will notify the applicant of its assessment and provide an opportunity to withdraw their application.  The final rule also codified the Commission’s existing practice of imposing a permanent bar on applicants who have submitted materially false, fictitious, or fraudulent statements in their application, in dealings with the Commission, or in related actions by other regulatory authorities.  Applicants will be notified and given an opportunity to respond prior to the issuance of a permanent bar.

In addition, the final rule provides for a streamlined summary-disposition procedure for five categories of common denials: 1) untimely award applications; 2) failure to submit information in the form and manner required by the rules; 3) applications where the claimant’s information was never provided or used by staff responsible for the investigation; 4) failure to comply with the Commission’s requests for additional information or other assistance; and 5) failure to specify the tip on which the award claim is based.  For these categories of denials, the Office of the Whistleblower will issue a preliminary summary disposition and provide 30 days for claimants to file a written response prior to issuing a final determination.


The Commission emphasized that the changes implemented by the final rule were intended to provide more clarity to whistleblowers regarding the program’s requirements and increase the efficiency of processing and disbursing awards.  Thus, the majority of changes focused on either codifying preexisting procedures or providing additional guidance to flesh out the whistleblower program’s requirements.

SEC Awards Whistleblower More Than $10 Million

On September 14, 2020, the SEC announced payment of more than $10 million to a whistleblower who provided original information to the SEC that led to a successful enforcement action.  (The order granting the award can be accessed here.)

In explaining the reason for its award determination, the SEC noted that the whistleblower had “provided extensive and ongoing assistance to the investigative team over the course of the investigation, including identifying witnesses and helping staff understand complex fact patterns and issues related to the matters under investigation.”

Since issuing its first whistleblower award in 2012, the SEC has awarded approximately $520 million to 94 individuals.

Third Circuit Confirms Limits on Scope of Protected Activity Under SOX

On July 16, 2020, the Third Circuit affirmed the dismissal of a former IT analyst’s whistleblower retaliation claim, holding that he lacked an objectively reasonable belief that his complaints implicated one of the enumerated forms of fraud in the SOX whistleblower provision.  Reilly v. GlaxoSmithKline, LLC, No. 19-cv-2897.


Plaintiff was an IT analyst for the Company, where his duties included maintaining the Company’s AS/400 computer servers and addressing performance and security issues related to them.  Beginning in 2011, Plaintiff allegedly began complaining to his supervisor about performance issues caused by the decision to “uncap” the servers’ processors, which allowed them to share capacity.  In 2013, he allegedly voiced an additional concern that the servers’ access management plan provided certain users with more authority than they should be allowed.  Plaintiff was placed in charge of remediating both of the foregoing issues.  Plaintiff escalated his complaints to the Company’s compliance office in 2014, then to the CEO in 2015, adding that he believed these issues were not adequately disclosed in the Company’s 2013 SEC report.  In response, the Company conducted two internal investigations, both of which concluded that Plaintiff’s complaints were unfounded.

In 2014, due to a decision to outsource management of the AS/400 servers, Plaintiff was notified that his department would be reduced to one analyst position and one manager position.  Believing he was “protected” due to his complaints, plaintiff decided not to apply for the remaining analyst position and his employment was eventually terminated in June 2015.  One month later, Plaintiff filed a SOX whistleblower retaliation complaint in the U.S. District Court for the Eastern District of Pennsylvania.  The Court granted the Company’s motion for summary judgment (see our post here).


On appeal, the Third Circuit, relying on its decision in Wiest v. Tyco Elecs. Corp., 812 F.3d 319 (3d Cir. 2016) (see our post on that decision here), reiterated that “Section 806 of SOX protects whistleblowing employees from retaliation for providing information regarding conduct which the employee reasonably believes constitutes mail fraud, wire fraud, bank fraud, securities fraud, a violation of any rule or regulation of the SEC, or fraud against shareholders.”  The court held that Plaintiff failed to show that his “belief” that the Company was committing one of the enumerated forms of fraud was objectively reasonable.  First, the court found that it would not have been objectively reasonable for Plaintiff to believe that the Company was perpetuating a fraud while, at the same time, assigning him to remediate the very issues he complained of.  Describing Plaintiff’s complaints as “workplace disagreements about routine IT issues,” the Court noted that the Company was not required to include such technical details in its SEC reports.  In fact, the court stated that in its annual SEC reports, the Company had sufficiently disclosed risks related to cybersecurity and its computer systems, which in any event, did not relate to fraud.  Finding that Plaintiff had failed to show that his complaints about internal controls “relat[ed] in an understandable way” to any of Section 806’s enumerated forms of fraud, the court affirmed the lower court’s ruling dismissing Plaintiff’s claim.


Reilly reinforces that employees complaining of alleged violations of internal company policies or controls must still state an objectively reasonable belief that those violations implicate one of the provisions specifically enumerated in SOX.

ARB Denies Equitable Tolling of 180-Day Statute of Limitations Under SOX

On June 29, 2020, the Administrative Review Board (“ARB”) upheld the dismissal of a whistleblower retaliation complaint under Section 806 of the Sarbanes-Oxley Act (“SOX”) for failure to file within the 180-day statutory deadline.  Xanthopoulos v. Marsh & McLennan Companies, Inc., ARB Case No. 2019-0045 (June 29, 2020).


Complainant was an employee of Mercer Investment Consulting, an operating company owned by Marsh & McLennan Companies.  Complainant was fired on October 3, 2017, and though he made several filings with the SEC, he did not file his complaint with OSHA until 350 days later on September 18, 2018.  As a result, OSHA dismissed the complaint as untimely, and the Administrative Law Judge (“ALJ”) agreed, holding that Complainant’s claims did not merit equitable tolling of the 180-day statute of limitations under SOX.  Complainant petitioned the ARB for review.


The ARB noted that there are four situations in which equitable tolling of the SOX statute of limitations is appropriate: 1) when the defendant has actively misled the plaintiff with respect to the cause of action; 2) the plaintiff has in some extraordinary way been prevented from asserting his rights; 3) the plaintiff has raised the precise statutory claim in issue but has mistakenly done so in the wrong forum; and 4) the employer’s acts or omissions have lulled the complainant into forgoing prompt action to vindicate his rights.

Complainant argued that his SEC filings were actually SOX claims filed in the wrong forum, due to his mistaken belief that the SEC would investigate his retaliation claims.  According to Complainant, he was not aware until August 2018 that the SEC was not responsible for investigating his allegations of retaliation.

The ARB rejected these arguments.  In his SEC filings, though Complainant stated that his termination was retaliatory, he did not seek employment-based remedies such as reinstatement, back pay or other damages associated with his termination.  Instead, his only mention of monetary relief was in seeking an award under the SEC’s Whistleblower Program, which rewards individuals with a percentage of any money collected due to a SEC enforcement action based on information they provide.  Thus, the ARB found that based on Complainant’s filings, his complaints were concerned more with potential harms to the investing public than those resulting from his termination.

In addition, Complainant stated in his SEC filings that he would “keep the SEC posted of [his] legal actions” regarding “this possible case of sexual harassment, wrongful termination, and/or illegal retaliation under the whistleblower protection of the Dodd-Frank Act.”  The ARB found that these statements demonstrated that Complainant was aware that the SEC’s investigation was separate and would not cover any employment-related claim under SOX.  Furthermore, Complainant admitted to discussing his situation with a member of a civil rights organization he was a part of, who advised him that he should file a claim regarding his discharge with OSHA.  Thus, the ARB concluded, “it is clear that Complainant did not mistakenly file a SOX whistleblower claim with the SEC, but deliberately filed with the SEC a non-SOX claim for the purpose of remedying Respondent’s wrongful conduct that he complained of and seeking a whistleblower award.”


This decision reinforces that the 180-day statute of limitations for SOX whistleblower retaliation claims is strictly construed and equitable tolling of this deadline will only be granted in narrow circumstances.

ARB Rules That Complaints about Theoretical Violations are not Protected Whistleblowing Activity under Dodd-Frank

On June 18, 2020, the U.S. Department of Labor Administrative Review Board (“ARB”) held that a complaint about a theoretical violation of the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act of 2010 (“Dodd-Frank”) does not constitute protected activity under the whistleblower provisions of that statute.  Bryan Horn v. University First Federal Credit Union, ARB Case No. 18-0033 (June 18, 2020).


University First Federal Credit Union (“UFFCU”) hired Complainant as a financial service representative in 2015.  Throughout his employment, Complainant expressed his concerns that multiple UFFCU internal procedures were inadequate.  He also made suggestions for improvements to those procedures during an internal audit.

In early 2016, Complainant worked on processing a customer’s auto loan, which the customer closed at a different UFFCU branch.  That branch’s Acting Manager changed the name of the loan’s processor to reflect their branch, so they and the branch would get credit for processing the loan.

Complainant contacted a branch manager to discuss the loan because he believed it was not “legally and ethically right for someone to steal someone’s work.”  Complainant indicated he would resign that evening and then asked for time to consult with an attorney.  The next day, he expressed his desire to continue working; however, UFFCU told him he could resign or would be terminated.  Complainant resigned that day.  His resignation letter accused UFFCU of violating “ethics and banking laws.”

Complainant subsequently filed a complaint with OSHA, alleging that UFFCU terminated him in retaliation for engaging in activities protected by Dodd-Frank.

ARB’s Ruling

The ARB affirmed the Administrative Law Judge’s (“ALJ”) conclusion that Complainant did not engage in Dodd-Frank-protected activity.  On appeal, Complainant argued that his complaints should be entitled to protection because he had complained “that the lack of written or standardized or internal policies and procedures could lead to mistakes and violations of Dodd-Frank.”  The ARB rejected this argument, explaining:

This is incorrect because an employee does not engage in whistleblower activity by describing merely theoretical situations. Such a belief is too attenuated from the standard to be a reasonable belief of a violation of law and therefore failed to satisfy one of the required elements of his retaliation claim. Stated another way, mere speculation does not satisfy [Complainant]’s burden.


This decision underscores that plaintiffs must reasonably believe there was an actual violation of law, as opposed to a merely theoretical violation, to establish protected activity.

Texas District Court Dismisses SOX Whistleblower Claim for Lack of Employer-Employee Relationship

On June 12, 2020, the U.S. District Court for the Southern District of Texas granted a motion to dismiss in favor of the defendant in a SOX whistleblower retaliation case, finding that the alleged whistleblower – a contractor and advisory board member of the defendant – was not an employee of the defendant, as required by SOX.  Moody v. American National Insurance Co., No. 3:19-cv-00206 (S.D. Tex. June 12, 2020).


Plaintiff brought suit against the American National Insurance Company (“ANICO”) after he was allegedly retaliated against for complaining about the company’s purported SEC violations and bringing a related shareholder-derivative suit.  Specifically, Plaintiff claimed that he experienced retaliation when ANICO: (1) removed him from his position as an advisory board member, (2) canceled contracts with his insurance company, and (3) announced the termination of an office-space lease in one of his company’s buildings.

ANICO filed a motion to dismiss, arguing that Plaintiff is not an employee, and therefore, not within the class of persons that SOX protects.  In response, Plaintiff argued that as “an Advisory Director of ANICO … [and] an insurance agent selling insurance for and on behalf of ANICO as a contractor,” he is a covered employee under SOX.  Plaintiff relied on the U.S. Supreme Court’s decision in Lawson v. FMR (2014) (discussed here), which extended the class of people protected by SOX to include not only those employed by the public company itself, but also potentially employees of contractors and subcontractors who perform work for the pubic company.  According to Plaintiff, Lawson held that SOX protects a public company’s contractors and agents – and that he was therefore protected from retaliation under the statute.


The court sided with ANICO, holding that “retaliation plaintiffs must be employees of the defendant they sue, whether that defendant-employer is the public company itself or one of its contractors.”  In other words, according to the court, the employer-employee relationship is an “essential element” of a retaliation claim.

Because Plaintiff never asserted that he had an employment relationship with ANICO, he cannot state a SOX retaliation claim against the company.  Without further factual support of an employer-employee relationship, it is not enough that Plaintiff claimed that he is the “functional equivalent of an employee” in his role as “an agent, contractor, or subcontractor of ANICO.”  Plaintiff’s service as an advisory board member was also found insufficient to give rise to an employer-employee relationship.  Despite the fact that a corporate director is not disqualified from becoming an employee of the corporation, according to the court, “it is ‘hornbook law’ that a corporate director is not, simply by virtue of his position, an employee.”


Although Lawson greatly expanded the potential universe of companies covered by SOX’s whistleblower provision, this case is a reminder that there are meaningful limitations to its reach – including the requirement that an employer-employee relationship exist in order for a whistleblower to state a claim under the statute.