With the new administration comes a new era for whistleblowing. High-risk whistleblower complaints implicating Dodd-Frank, Sarbanes-Oxley and similar state whistleblower retaliation statutes continue to rise. These complaints often rise to the highest levels of a company’s legal and compliance functions, as they present significant financial and reputational risks. Proskauer’s Lloyd
Third Circuit Revives In-House Attorney’s Whistleblower Claim
On April 12, 2017, the Third Circuit partially revived a former in-house attorney’s whistleblower retaliation lawsuit against his previous employer. Danon v. Vanguard Group, Inc., No. 16-cv-2881.
Plaintiff, a former in-house tax lawyer, previously raised retaliation claims against the Company in New York State Court under the New York False Claims Act, alleging he was discharged in retaliation for informing senior employees of his belief that the Company was violating certain tax and corporate laws. The state court dismissed the case based on the plaintiff’s failure to demonstrate that the Company knew he was involved in any protected conduct at the time of his termination. Plaintiff then filed suit against the Company in the District Court for the Eastern District of Pennsylvania alleging whistleblower retaliation in violation of SOX, Dodd-Frank, and the Pennsylvania Whistleblower Law. His claims again were dismissed because the court determined he was precluded from asserting the Company’s knowledge of his allegedly protected conduct (we previously wrote about the SEC’s amicus brief to the district court in support of the plaintiff’s arguments here).
SEC Reduces Whistleblower Bounty Based On Culpability And Delayed Reporting
On February 28, 2017, in an Order almost entirely devoid of detail, the SEC announced that a whistleblower will receive 20% of any monetary sanctions collected in an enforcement action commenced as a result of the whistleblower’s tip. The SEC is giving this “reduced” award while acknowledging that the whistleblower (1) was “culpable” in the securities violation at issue, and (2) unreasonably delayed reporting the company’s wrongdoing to the agency.
Proskauer to Present on Modern Whistleblower Retaliation Law and the SEC Bounty Program at Bloomberg’s BNA Webinar
On Friday, March 3, 2017, Proskauer Partner Steve Pearlman will present on key aspects of modern whistleblower retaliation law, SEC enforcement actions involving “pre-taliation,” and the SEC Office of the Whistleblower bounty program. Pearlman is the co-head of the Whistleblowing & Retaliation Group. He will join co-panelist Sean X. McKessy,
SEC Issues $17 Million Whistleblower Award
Yesterday, the SEC issued a stunning $17 million award to a former employee, whose “detailed tip” provided original information to SEC enforcement staff that “substantially advanced their investigation” into the whistleblower’s former employer. The SEC specifically credited the “company insider” with allowing enforcement staff “to conserve time and resources in the investigation, and help[ing] staff to gather evidence supporting the [SEC’s] charges.” Four other claimants who sought awards in conjunction with the same enforcement action saw their claims denied for failing to meet the standard of “voluntarily provid[ing] the Commission with original information that leads to” successful enforcement.
No Bounty For Purported Whistleblower Tipster
On May 31, 2016, the U.S. Securities and Exchange Commission (“SEC”) issued an order upholding the SEC Claims Review Staff’s (“CRS”) Preliminary Determination denying a claim for a whistleblower award in connection with the enforcement action SEC v. CVS Caremark Corp. Notice of Covered Action 2014-48 (“Covered Action”). This order provides insight into a whistleblower tip that essentially goes nowhere, which is what happens to the overwhelmingly vast majority of them. And this insight is valuable because most attention has been focused on those very few instances where the SEC has in fact awarded a bounty. During the Fiscal Year 2015, the SEC received 3,923 tips, issued orders and determinations on roughly150 whistleblower claims, but only paid out awards to 8 Claimants during that time (or in just over .2 percent of the tips filed). See SEC 2015 Annual Report to Congress on the Dodd-Frank Whistleblower Program. (See our posts on the 2015, 2014, 2013 and 2012 Annual Reports).
SEC Annual Report: Thousands of Tips, One Award & Minimal Transparency
In its Annual Report on the Dodd-Frank Whistleblower Program (Report), the SEC has revealed that it has received 3,001 tips during its 2012 fiscal year (the first year of this program), and it paid out its first award to a whistleblower in 2012.
Pursuant to Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) the whistleblower bounty program directs the SEC to make monetary awards to individuals who voluntarily provide original information that leads to successful enforcement actions resulting in the imposition of monetary sanctions over $1 million. Whistleblowers can receive awards of between 10% to 30% of the monetary sanctions collected (the percentage of the recovery is left to the SEC’s discretion).
The Fight Isn’t Over: Employers Should Keep Battling The Definition of “Whistleblower” Under Dodd-Frank
The “Securities Whistleblower Incentives and Protection” section of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“DFA”) is an integrated scheme designed to encourage individuals to complain to the SEC of securities law violations by offering bounties and protection against retaliation. The two components of this section are: (i) a whistleblower bounty program; and (ii) a prohibition on retaliation against individuals who blow the whistle on violations of securities laws.
There’s much controversy over who is protected under the DFA anti-retaliation provision. On the one hand, the DFA unequivocally defines “whistleblower” as a person or persons who report a violation of securities laws to the SEC. 15 U.S.C. § 78u-6(a)(6) (emphasis added). But the following protective text in the same section, which prohibits retaliation for “any lawful act done by the whistleblower” has created confusion, as it encompasses: “disclosures … required or protected under [The Sarbanes Oxley Act] …, the Securities Exchange Act of 1934 …, including section 10A(m) of such Act …, section 1513(e) of Title 18, and any other law, rule, or regulation subject to the jurisdiction of the Commission.” 15 U.S.C. § 78u-6(h)(1)(A)(iii).