The U.S. District Court for the Eastern District of Wisconsin in Verfuerth v. Orion Energy Systems, Inc., No. 14-cv-352 (E.D. Wis. Nov. 4, 2014) recently ruled that the Dodd-Frank whistleblower protection provision does not protect employees who only report alleged violations of the securities laws internally. In dismissing a former CEO’s whistleblower retaliation claim, the court followed the Fifth Circuit’s decision in Asadi v. F.E. Energy (USA), L.L.C., 720 F.3d 620 (5th Cir. 2013) and held that the text of the statute requires that a “whistleblower” report an alleged violation to the SEC to be covered by Dodd-Frank’s whistleblower protection provision.
E.D. Pennsylvania Limits Supreme Court’s SOX Whistleblower Decision
In a case of first impression, the U.S. District Court for the Eastern District of Pennsylvania ruled that the U.S. Supreme Court’s holding in Lawson v. FMR LLC, 134 S. Ct. 1158 (2014)—that the whistleblower protection provision in Section 806 of SOX protects employees of a private contractor to a publicly-traded company—does not cover an employee of a private contractor who claimed he was discharged for reporting that his employer committed fraud against a public company but did not allege that fraud was committed by the public company. Gibney v. Evolution Marketing Research LLC, No. 14-1913, 2014 U.S. Dist. LEXIS 79369 (E.D. Pa. June 11, 2014).
SEC Bans Repeat, Bad-Faith Tipster From Future Submissions
Last month, after an individual filed 196 award applications, the SEC Office of the Whistleblower (OWB) issued a detailed Final Order deeming him/her ineligible for an award in any of his/her pending applications and prohibiting him/her from filing any future submissions with the SEC. The OWB explained that this person “has knowingly and willingly made false, fictitious, or fraudulent statements to the Commission over a course of years and continues to do so,” and that “all but one” of his/her 196 applications “lack even a superficial factual nexus to the covered actions for which [s/he] is seeking an award.” It further noted that the investigations of this person’s applications had consumed significant resources and delayed its ability to finalize awards to claimants who filed meritorious applications.
CFTC Issues First Whistleblower Program Award
Today, the Acting Chairman of the Commodity Futures Trading Commission (“CFTC” or the “Commission”), Mark Wetjen, announced that the Commission will make its first payout to a whistleblower as part of its Whistleblower Program created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). In exchange for providing information about violations of the Commodity Exchange Act of 1936, the tipster will receive approximately $240,000.
SEC Scrutinizing Contractual Impediments to Whistleblower Complaints
Sean McKessy (“McKessy”), the Securities and Exchange Commission’s (“SEC”) whistleblower chief, cautioned in-house attorneys who draft contracts incentivizing employees to report securities fraud complaints in-house rather than to the SEC, according to an article in Law360 (subscription required). While speaking to the Georgetown University Law Center Counsel Institute, McKessy explained that the SEC is actively looking for creatively drafted contracts in which employees agree not to go to the SEC or regulators with complaints. The SEC is looking for these provisions in contracts such as confidentiality, separation and employment agreements. According to McKessy, if the SEC sees a contract containing such a provision, the Commission will not only go after the company but the attorneys who drafted it and may go so far as to revoke the attorneys’ power to appear before the SEC. McKessy has made similar public comments in the past (discussed in our post from December 12, 2012).
Texas Federal Court Gives SOX Whistleblower Another Big Bite At The Apple
The U.S. District Court for the Northern District of Texas recently ruled that a plaintiff had the right to a de novo review of her SOX whistleblower claims in federal district court even though she had already participated in two levels of administrative review before the Department of Labor (DoL). Candler v. URS Corp., No. 13-cv-1306-B (N.D. Texas Sept. 13, 2013). This decision raises the stakes and costs for employers by requiring them to submit to duplicative discovery and dispositive motion practice and potentially yet another evidentiary hearing.
SEC Enforcement Official Recommends That Firms Showcase Their Compliance Programs
Stephen Cohen, Associate Director in the Securities and Exchange Commission’s (SEC) Enforcement Division, recently advised companies being investigated to flaunt their compliance programs to the agency, according to an article in the Wall Street Journal (subscription required). More specifically, while speaking on a panel at the 2013 Corporate Whistleblowing Forum, Mr. Cohen suggested that companies would benefit during investigations if they demonstrate a strong internal compliance program and a culture of compliance and ethics. Officials from the Justice Department and Commodity Futures Trading Commission, who also spoke on the panel, agreed and reiterated that companies may garner goodwill if they are forthcoming with information and proactive when problems arise.
Sixth Circuit: Failure to Exhaust Administrative Remedies Not A Jurisdictional Bar For Title VII Retaliation Claim
On August 13, 2013, the Sixth Circuit reinstated a retaliation claim under Title VII, reversing the dismissal of the claim on jurisdictional grounds for failure to exhaust administrative remedies with the EEOC. Adamov v. U.S. Nat’l Bank Assoc., No. 12-cv-6114 (6th Cir. 2013).
U.S. Supreme Court to Decide Whether SOX’s Whistleblower Provision Protects Employees of Publicly Traded Company’s Contractors
On May 20, 2013, the United States Supreme Court granted a petition for a writ of certiorari to review the United States Court of Appeals for the First Circuit’s decision holding that SOX’s whistleblower protection does not extend to employees of a publicly traded company’s contractors. Lawson v. FMR LLC, 670 F.3d 61 (1st Cir. 2012). Notably, this is the first time the Supreme Court has been called upon to resolve an issue under Section 806 of the Sarbanes-Oxley Act.
C.D. Cal. Greenlights SOX Claim, Analyzing Whether Scienter Must Be Shown Where Violation Of Internal Controls Is Alleged
On April 24, 2013, the U.S. District Court for the Central District of California issued its final ruling that a SOX whistleblower complaint survived a Rule 12(b)(6) challenge. Zulfer v. Playboy Enterprises, Inc., No. 12-cv-08263 (C.D. Cal. April 24, 2013). The decision focused on Plaintiff Catherine A. Zulfer’s (Plaintiff) allegation that she “reasonably believed” her disclosures regarding certain of Defendant Playboy Enterprises, Inc. (Company) executives’ alleged attempts to circumvent internal procedures concerning discretionary bonuses were related to a violation of SEC rules and regulations. Although the court allowed her to proceed with a claim under Section 806 of SOX, it dismissed her claims under California state law pursuant to Rule 12(b)(6) because she did not sufficiently allege that accruing the bonuses would have been illegal.