SEC Alleges Employer’s Compliance Manual Violates Rule 21F-17

On June 23, 2021, the SEC announced that Guggenheim Securities, LLC (“Company”) agreed to settle charges that it violated Rule 21F-17 by including language in its compliance manual and training materials that allegedly prohibited employees from contacting regulators without prior Company approval.  Without admitting or denying the findings in the SEC’s order, the Company consented to a cease-and-desist order, a censure, and a civil penalty of $208,912.

Rule 21F-17, which was adopted by the SEC after the passage of the Dodd-Frank Act in 2010, prohibits actions that impede individuals from reporting a possible securities law violation to the SEC.

The SEC alleged that from 2016-2020, the Company’s compliance manual stated that:

Employees are also strictly prohibited from initiating contact with any Regulator without prior approval from the Legal or Compliance Department.  This prohibition applies to any subject matter that might be discussed with a Regulator, including an individual’s registration status with FINRA.  Any employee that violates this policy may be subject to disciplinary action by the Firm.

According to the order, the compliance manual was updated annually and employees were required to sign an acknowledgement that they would adhere to its policies.  The SEC further alleged that in 2018 and 2019, the Company provided annual compliance trainings that included similar language.

Notably, the SEC stated that it was unaware of any instances in which an employee was prevented from communicating with SEC staff about potential violations or in which the Company took action to enforce the compliance manual’s restriction or prevent communications.  After being contacted by the SEC, the Company removed the language quoted above and added a provision notifying employees of their right to report violations and to participate, assist, or testify in any investigation by a governmental agency.

As we previously reported (see here and here), the SEC brought multiple actions to enforce Rule 21F-17 during the Obama administration, focusing primarily on allegedly restrictive language in severance agreements, but only one such action during the Trump administration (see here and here).  This recent action may signal renewed scrutiny by the SEC under the Biden administration of companies’ compliance with Rule 21F-17.

CA Federal Court Dismisses Whistleblower Claims After Bench Trial

On July 26, 2021, the United States District Court for the Northern District of California held, after a bench trial, that Plaintiff Botta failed to prove that Defendant PricewaterhouseCoopers LLP (“PwC”) terminated his employment in retaliation for his filing of a complaint with the SEC, and dismissed his whistleblower claims brought under SOX and California law.  Botta v. PricewaterhouseCoopers LLP, No. 18-cv-02615.


Plaintiff was an auditor at PwC for nearly two decades.  In 2016, he filed a whistleblower complaint with the SEC, alleging that PwC supervisors willingly overlooked accounting errors and internal-control deficiencies in order to retain business.  The SEC investigated, but chose not to take action against PwC.

In August 2017, PwC terminated Plaintiff’s employment.  Plaintiff claimed the termination, as well as certain other employment actions, were taken in retaliation for his complaint to the SEC.  Plaintiff subsequently sued PwC, alleging violations of SOX, supplemental whistleblower claims under California law, and breach of his employment contract.  The court held a bench trial using Zoom.


In its Findings of Fact and Conclusions of Law, the court ruled that PwC was justified in terminating Plaintiff’s employment, and that Plaintiff had not established that PwC retaliated against him.  Although Plaintiff focused on the timing of his termination (four months after the SEC opened an investigation into his whistleblower complaint), the court held that the temporal proximity “wasn’t bolstered by other evidence,” and PwC had “offered a different, persuasive side of the story.”  PwC asserted at trial that Plaintiff’s employment had been terminated because he “fabricated an internal control or lied about doing so,” which was a violation of PwC internal standards.  The court ultimately found that “[Plaintiff], in the end, simply didn’t put forward enough evidence to prove that his SEC complaint contributed to PwC’s decision to fire him.  The temporal proximity between his complaint and his termination generated suspicion, but at trial that suspicion wasn’t confirmed.”  PwC representatives also testified persuasively that they had not even known Plaintiff had filed a whistleblower complaint.

The court also found that Plaintiff was removed from other client engagements for legitimate reasons, including his “lack of rapport,” “bedside manner,” and lack of “sensitivity.”  Therefore, the court held that Plaintiff had not proven that his protected activity was a “contributing factor” to the adverse actions taken against him.  For the same reasons, Plaintiff had not established a causal link between his protected activity and any adverse employment action as required under California law.


This case demonstrates that temporal proximity between a whistleblower complaint and an adverse employment action likely will not, standing alone, establish retaliation.  Instead, the factfinder considers all of the evidence and makes a context-specific determination regarding whether an adverse employment action was motivated by retaliatory animus.

SDNY: SOX Whistleblower Protections Extend to Investors

On July 21, 2021, the U.S. District Court for the Southern District of New York held that the whistleblower protections established in SOX are not restricted to employee whistleblowers, but also extend to shareholders.  SEC v. Collector’s Coffee Inc., No. 19-cv-4355.


As we previously reported, in 2019 the SEC sued online auction portal Collectors Coffee and its CEO, alleging in an amended complaint that the CEO attempted to prevent investors from communicating with the SEC in violation of Rule 21F-17.  Rule 21F-17, which was adopted by the SEC after the passage of the Dodd-Frank Act, prohibits company actions that impede individuals from reporting a possible securities law violation to the SEC.  Although the Obama-era SEC brought multiple enforcement actions to enforce Rule 21F-17, this action was notable as it was the SEC’s first public attempt to enforce Rule 21F-17 during the Trump administration.

The SEC alleged in its lawsuit that the CEO and Collectors Coffee attempted to enforce a settlement agreement they had reached with two investors who had accused the CEO of making material misrepresentations and omissions, which contained a provision prohibiting communications with regulatory agencies like the SEC.

On June 26, 2020, Defendants filed a motion to dismiss, and on May 17, 2021, Magistrate Judge Gabriel Gorenstein issued a Report & Recommendation recommending that the District Court deny their motion because SOX is not restricted to employee whistleblowers.  Collectors Coffee and the CEO objected to the Magistrate Judge’s Report, arguing that the SEC exceeded its rulemaking authority in promulgating Rule 21F-17, and that the Rule violates the First Amendment of the United States Constitution.


District Judge Victor Marrero adopted the Magistrate Judge’s Report and Recommendation in its entirety.  Defendants argued that Rule 21F-17 exceeded the SEC’s rulemaking authority because Rule 21F-17 applies to any “person,” while Section 21F of the Exchange Act applies only to whistleblower-employees.  The court rejected this argument, holding that the broad definition of the term “whistleblower” in Section 21F—which includes “any individual who provides … information relating to a violation of the securities laws to the [SEC]”—is not restricted to the employer-employee context.  The court also relied on the Congressional intent behind Section 21F, which was to encourage whistleblowing activity and protect whistleblowers generally.

The court also rejected Defendants’ First Amendment argument, holding that because the contractual provisions they sought to enforce would be illegal and unenforceable under Rule 21F-17, no First Amendment right was abridged.


This decision provides for a broad reach of Rule 21F-17.  Companies should ensure that their internal investigation protocols and settlement agreements include language making clear that whistleblowers may report concerns to the SEC.

June 2021 Update of the SEC’s Covered Actions for Potential Whistleblower Claims

On June 30, 2021, the SEC posted six Notices of Covered Actions, for which individuals have 90 calendar days to apply for a whistleblower award.  As discussed in our prior post, the SEC publishes Notices for cases in which the final judgment or order, by itself or together with other prior judgments or orders in the same action issued after July 21, 2010, results in monetary sanctions exceeding $1 million.

In this post, we briefly survey the six June 2021 Notices of Covered Actions.

2021-056: In the Matter of Under Armour, Inc.

On May 3, 2021, the SEC entered an order with Under Armour Inc. based on an Offer of Settlement and findings of misleading statements regarding revenue growths.  According to the order, Under Armour “pulled forward” existing orders that customers had requested be shipped in future quarters, in order to close the gap between the company’s internal forecasts and analysts’ revenue estimates.  According to the SEC, Under Armour misleadingly attributed its revenue growth during this period to various factors without disclosing its pull forward practices.  Without admitting or denying the findings in the SEC’s order, Under Armour agreed to pay a $9 million penalty, as well as to cease and desist from any further violations.

2021-057: SEC v. CapSource, Inc., Stephen J. Byrne, and Gregory P. Herlean

On May 5, 2021, final judgment was entered against two principals of CapSource, Inc., Stephen J. Byrne and Gregory P. Herlean, for fraud and registration violations in connection with multiple related securities offerings.  On December 21, 2020, the SEC had alleged the defendants knew, or were reckless in not knowing, that CapSource’s largest client, Michael B. Zipprich, was diverting millions of dollars of proceeds raised through CapSource for various other projects managed by the client, in contrast to the representations made to the investors.  The SEC alleged that the defendants further assisted Zipprich in defrauding investors and raising millions of dollars in subsequent offerings to improperly shore up the finances and replace the previous diversion shortfalls.  CapSource, Byrne, and Herlean consented to entry of judgment that, among other things, orders Byrne and Herlean to pay $1.9 million and $1 million respectively for disgorgement, pre-judgment interest, and civil penalties.

2021-058: In the Matter of GWFS Equities, Inc.

On May 12, 2021, the SEC settled with GWFS Equities, Inc., a registered broker-dealer, for charges of federal securities law violations relating to Suspicious Activity Report (“SAR”) filings.  The SEC alleged that from September 2015 through October 2018, GWFS, which provides services to employer-sponsored retirement plans, began detecting increasing numbers of attempts by bad actors to gain unauthorized access to the retirement accounts of individual plan participants and the funds therein.  According to the SEC, GWFS failed to implement its anti-money laundering program consistently in response to these attempts, which resulted in it not filing approximately 130 SARs and omitting required information from the 297 SARS it did file.  The SEC’s announcement of the settlement stated that GWFS agreed to a civil monetary penalty of $1.5 million, along with undertaking  significant remedial measures (including implementing new SAR-related policies, procedures, standards, and trainings, and retaining an outside AML consulting firm) and  providing substantial cooperation during the SEC’s investigation.

2021-059: SEC v. Onix Capital LLC, and Ablerto Chang-Rajii

On April 21, 2021, a final judgment was entered by the United States District Court for the Southern District of Florida ordering Onix Capital LLC to pay $9.8 million, comprising $8.0 million in disgorgement and $1.8 million in prejudgment interest.  The SEC’s complaint had alleged Onix Capital, an asset management company based in Miami, made  material misrepresentations regarding investments it offered, its use of the funds, and the background and financial success of Onix’s owner Alberto Chang-Rajii.  The SEC alleged that the defendants raised $7.4 million by, among other things, improperly guaranteeing annual returns of 12 to 19 percent on promissory notes, providing false depictions of Chang, and promising to use funds to invest in companies such as Uber, Snapchat, and Square, when the funds were instead diverted to Chang and other investors.  Onix consented to the final judgment without admitting or denying the complaint’s allegations.

2021-060: SEC v. Kai Christian Petersen; Gil Beserglik; and Raz Beserglik

On April 21, 2021, a final judgment was entered by the United States District Court for the Central District of California against three foreign individuals, Kai Christian Petersen, Gil Beserglik, and Raz Beserglik for the payment of disgorgement, prejudgment interest, and civil penalties.  In 2019, the SEC’s complaint alleged the three individuals engaged in the fraudulent and illegal offering and sale of more than $100 million of securities called “binary options” between 2014 and 2017.  The SEC alleged the defendants and related entities, who were not registered broker-dealers, used high pressure sales tactics to offer and sell these securities to vulnerable investors, including lying to potential investors about their trading expertise and telling investors that the brokers would only earn money if the investors made money, when in reality, the brokers earned money on investor losses.  The SEC also alleged the defendants misappropriated millions of dollars of investor deposits, by, among other things, sending investor money to entities owned and controlled by themselves.  Without admitting or denying the allegations of the SEC’s complaint, Gil Beserglik, Raz Beserglik, and Petersen consented to judgment of $2.6 million, $2.6 million, and $300,000, respectively.

2021-061: In the Matter of S&P Dow Jones Indices LLC

On May 17, 2021, the SEC settled charges with S&P Dow Jones Indices LLC for failures relating to a previously undisclosed quality control feature of one of its volatility-related indices, which led to publication of stale index values. Without admitting or denying the findings of the SEC’s order, S&P DJI consented to a civil money penalty of $9 million.  The SEC found that one of the indexes published by S&P DJI remained static due to an undisclosed “auto hold” feature during certain intervals between 4:00 pm and 5:08 pm on February 5, 2018, despite an unprecedented spike and market volatility that day.  Notwithstanding the monetary penalty, the SEC recognized prompt remedial acts and undertaken by the company and its cooperation with the Commission.

OSHA’s COVID-19 Emergency Temporary Standard Contains Anti-Retaliation Provision

On June 21, 2021, OSHA’s much-anticipated Emergency Temporary Standard (“ETS”) on COVID-19 protections went into effect.  While Proskauer’s Law and the Workplace blog covered the ETS in detail here, this post focuses on the anti-retaliation provision in the ETS.

Anti-Retaliation Provision

The ETS, which applies only to the health-care sector, contains an anti-retaliation provision prohibiting employers from discharging or discriminating against employees for exercising their rights and obligations relating to the COVID-19 pandemic.  This includes disclosing a positive test and/or COVID-19 symptoms, quarantining after testing positive for COVID-19, or notifying an employer of hazardous COVID-19 related conditions at the workplace (such as insufficient PPE or failure to implement enhanced cleaning and ventilation procedures).  Employers must also inform employees of the requirements of the ETS and that they are protected against retaliation.  Employers have discretion in how to provide the information, and may do so verbally, in writing, or by incorporating it into COVID-related trainings.

OSHA explained that the anti-retaliation provision was critical due to the “central role employee participation plays in effectuating the ETS’s purpose.”  For example, employees who test positive for COVID-19 must not hesitate to inform their employers of their condition out of fear of retaliation, so that they can be removed from the workplace and close contacts can be identified.  Similarly, employees must feel free to notify employers of COVID-related violations, such as co-workers refusing PPE or wearing PPE improperly, so that employers become aware of such conditions and can promptly address them.

OSHA noted that the anti-retaliation provision in the ETS partially overlaps with the statutory bar on retaliation found in Section 11(c) of the OSH Act (which we discussed here).  However, in addition to improving employee awareness of its protections, the ETS anti-retaliation provision also provides additional remedies.  Under Section 11(c), employees have only 30 days to report retaliation to OSHA, after which the agency may file a complaint against the employer in U.S. District Court on the employee’s behalf.  In contrast, under the ETS, OSHA has up to six months from the date of the alleged retaliation to issue a citation, which may include remedies such as back-pay and reinstatement.  In addition, OSHA can address retaliation directly and relatively quickly by issuing a citation, whereas litigation in court under Section 11(c) is a much slower process.  That said, the ETS does not limit an employee’s options—they may file a complaint under Section 11(c) regardless of whether OSHA is investigating a violation of the ETS for the same underlying conduct.


As significant steps toward reopening are already underway, many employers may welcome OSHA’s decision to limit application of the ETS to healthcare settings.  Even there, healthcare employers will likely find that many of the ETS’s requirements overlap with the protocols and preventative measures they have already taken under prior CDC, state, or local guidelines.  However, particularly given the substantial increase in retaliation complaints observed during the pandemic, all employers are reminded that they remain subject to the requirements of the OSH Act, including its General Duty Clause and Section 11(c)’s anti-retaliation provision.

Review of the SEC Whistleblower Program: At the Crossroads of Securities Law and Whistleblower Protection

Fiscal year 2020 marked the ten-year anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act establishing the Securities and Exchange Commission’s whistleblower program.  Since its inception through the end of FY2020, the SEC has awarded approximately $562 million to 106 individuals.  Even a decade after it was created, the whistleblower program continues to break its own records; in 2020, the SEC issued several awards landing in the top 10 whistleblower awards of all time:

 Source: SEC’s 2020 Annual Report to Congress on the Dodd-Frank Whistleblower Program

We can already tell that FY2021 will be another record-breaking year.  In the first 8 months of FY2021, the SEC has granted an additional $339 million to 57 individuals.  This represents more than a third of the total $901 million awarded to 163 separate individuals since the SEC issued its first award pursuant to this program in 2012.  This includes an award of $114 million in October 2020, the largest single award in the program’s history, which was covered in this recent post.

It’s sometimes difficult to get a sense of what warrants these large awards.  Typically, publicly available orders relating to whistleblower awards are heavily redacted, especially the subject matter underlying the whistleblower tip and alleged misconduct.  However, at the end of each month, the SEC publishes Notices of Covered Action (“NoCA”) for every SEC enforcement action that results in monetary sanctions of over $1 million by a final judgment or order, by itself or together with other judgments or orders in the same action.  Individuals seeking a whistleblower award have 90 calendar days from the date that the NoCA is posted to apply.

Although a NoCA does not indicate whether a whistleblower tip, complaint, or referral led the SEC to open an investigation or file an action, a survey of the monthly NoCA postings will provide helpful insight into the types of actions and issues that have been the subject of recent SEC enforcement actions, some of which may be the basis for future whistleblower award.

In light of the ongoing growth of the SEC whistleblower program, Proskauer’s Whistleblower Defense and Corporate Dispute and Defense blogs will provide a periodic coverage of the program, including a monthly review of the NoCA postings.



SEC Awards Four Whistleblowers More Than $31 Million

On May 17, 2021, the SEC announced payment of more than $31 million to four whistleblowers who provided the SEC with information that resulted in the return of tens of millions of dollars to harmed investors.  The largest of the awards, totaling almost $27 million, was awarded to two joint whistleblowers who provided the SEC with new information and assisted with an existing investigation.  The second order included awards of approximately $3.75 million and $750,000 to two additional whistleblowers who independently provided information that assisted the SEC with an ongoing investigation.  (The orders granting the respective awards can be accessed here and here.)

Emily Pasquinelli, Acting Chief of the SEC’s Office of the Whistleblower, stated that “[w]histleblowers play a critical role in an investigation, whether at the outset or during the course of an investigation.”  She added that “[t]oday’s awards demonstrate that whistleblowers with specific, credible information who significantly contribute to the success of an existing investigation may be eligible for an award.”

Since the inception of the whistleblower program in 2011, the SEC has awarded approximately $873 million to 162 individuals, including over a quarter of a billion dollars in the first eight months of this fiscal year alone.

M.D. Pennsylvania Grants Summary Judgment on SOX Retaliation Claim

On April 12, 2021, the U.S. District Court for the Middle District of Pennsylvania granted a defendant-employer’s motion for summary judgment on a SOX whistleblower retaliation claim, holding that the company demonstrated that it would have terminated Plaintiff’s employment even in the absence of any alleged protected activity as part of a broad reduction-in-force (RIF).  Wickens v. Rite Aid Hdqtrs. Corp., No. 19-cv-02021.


Plaintiff, a former in-house attorney at the company, allegedly learned in early 2017 that several vice presidents sold their stock in the company shortly before a merger with a competitor was publicly announced, and internally reported his concern that they had engaged in insider trading.  The company terminated Plaintiff’s employment in January 2018 and Plaintiff subsequently filed suit, alleging that his employment was terminated in retaliation for his report, in violation of Section 806 of SOX.


The court granted the company’s motion for summary judgment and dismissed Plaintiff’s SOX claim.  Notably, the court did not consider whether Plaintiff had adequately established a prima facie case.  Instead, the court focused on its conclusion that the company had established that it would have terminated Plaintiff in the absence of any protected activity as part of a RIF that resulted in the elimination of over 80 positions.


This decision strengthens defendants’ ability to prevail on causation grounds where a purported whistleblower’s employment was terminated in connection with a RIF.

SEC Awards $22 Million to Two Whistleblowers

On May 10, 2021, 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 against a financial services firm.  (The order granting the awards can be accessed here.)  The larger of the two awards, $18 million, was awarded to the whistleblower who was the initial source of the information that prompted the SEC’s investigation.  The second award of $4 million was given to a second whistleblower who submitted additional information after the investigation was already underway.

Emily Pasquinelli, Acting Chief of the SEC’s Office of the Whistleblower, said in a press release that “[t]he reporting of credible information by these whistleblowers and their subsequent cooperation with the staff’s investigation allowed the Commission to better understand complex transactions related to the matters under investigation.”

Since the inception of the whistleblower program in 2011, the SEC has awarded approximately $838 million to 156 individuals.

Pennsylvania District Court Grants Employer Summary Judgment on SOX Claim

On March 29, 2021, the U.S. District Court for the Eastern District of Pennsylvania granted a defendant-employer’s motion for summary judgment on a SOX whistleblower retaliation claim, holding that the plaintiff lacked an objectively or subjectively reasonable belief that the company violated any law enumerated in Section 806 of SOX.  Ngai v. Urban Outfitters, Inc., No. 19-cv-1480.


Plaintiff, a Director of Sourcing and Technical Design, was responsible for ensuring that overseas factories properly executed apparel designs while minimizing production expenses.  He was required to ensure that factories were limiting waste and competitively pricing material, labor, and other costs.

Plaintiff claimed that throughout his employment, he reported general allegations of corporate waste and improper conduct by some of the company’s outside vendors and manufacturers.  Specifically, he complained that outside contractors were being wasteful, overcharging, self-dealing, inflating production costs, creating conflicts of interest within the company’s supply chain, and paying kickbacks to executives to secure high volume orders in violation of the company’s policies and Code of Conduct.  Plaintiff initially voiced his concerns directly to his supervisors, and then in April 2018 hired a lawyer, who sent over 20 letters to the company outlining Plaintiff’s concerns.  The company terminated Plaintiff’s employment in September 2018 and Plaintiff subsequently filed suit alleging, among other claims, that his employment was terminated in retaliation for his complaints.


The Court held that Plaintiff failed to establish that he had a subjectively or objectively reasonable belief that the company engaged in conduct covered by SOX.  Plaintiff failed to prove that he had a subjectively reasonable belief of a violation because the record showed that he personally believed he was reporting violations of company policies, as opposed to violations of the federal statutes covered by SOX.  The court said that while there is no need to “ring the bell” on each element of a law covered by SOX when making a complaint, a plaintiff needs to show more than a “veiled reference” to unspecified legal violations, especially where, as here, the plaintiff sent over 20 letters memorializing his allegations.

The court also held that Plaintiff failed to show an objectively reasonable belief that he was reporting violations covered by SOX.  Relying on the Third Circuit’s decision in Wiest v. Lynch (see our post on that case here), 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 in light of the fact that Plaintiff’s primary job was to increase efficiencies and reduce costs.  The court ruled that an objectively reasonable person with Plaintiff’s background and job responsibilities would not believe a failure to root out misconduct by outside vendors constituted bank, wire, or securities fraud, or a violation of SEC rules.


This decision underscores the need for a purported SOX whistleblower to hold a belief of a violation of one of the provisions enumerated in SOX that is both subjectively and objectively reasonable.


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