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Difference between revisions of "Whistleblower Protection Laws"
→Dodd-Frank Act
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Post Somers, the SEC has indicated that it will continue to prioritize whistleblower protection as a key tool to encourage whistleblowers to come forward. In a June 28, 2018 public statement at the open meeting announcing the Proposed Rulemaking, Chair Clayton stated: “Many have asked whether the SEC will continue to enforce the anti-retaliation provisions of Dodd-Frank. Let me be clear: retaliation protections are a key component of the whistleblower program, and we will bring charges against companies or individuals who violate the anti-retaliation protections when appropriate.” Statement at Open Meeting on Amendments to the Commission’s Whistleblower Program Rules. | Post Somers, the SEC has indicated that it will continue to prioritize whistleblower protection as a key tool to encourage whistleblowers to come forward. In a June 28, 2018 public statement at the open meeting announcing the Proposed Rulemaking, Chair Clayton stated: “Many have asked whether the SEC will continue to enforce the anti-retaliation provisions of Dodd-Frank. Let me be clear: retaliation protections are a key component of the whistleblower program, and we will bring charges against companies or individuals who violate the anti-retaliation protections when appropriate.” Statement at Open Meeting on Amendments to the Commission’s Whistleblower Program Rules. | ||
==='''SEC Enforcement of Dodd-Frank SEC Whistleblower Retaliation Provision'''=== | |||
The SEC has taken enforcement action for retaliation against a whistleblower. | |||
*On September 29, 2016, the SEC ordered International Game Technology (“IGT”) to pay a $500,000 penalty for terminating the employment of a whistleblower because he reported to senior management and to the SEC that the company’s financial statements might be distorted. See Exchange Act Release No. 78991 (Sept. 29, 2016). During an internal investigation into the whistleblower’s allegations, IGT removed him from opportunities that were integral to his ability to perform his job successfully. IGT then fired the whistleblower the same day as the internal investigation concluded that IGT’s cost-accounting model was appropriate and did not cause its financial statements to be distorted. The whistleblower was protected under the SEC whistleblower program, despite being mistaken, because he reasonably believed that IGT’s cost-accounting model constituted a violation of federal securities laws. | |||
The action against IGT was the SEC’s first standalone retaliation case. However, it is consistent with a 2014 enforcement action that indicated, for the first time, that retaliating against a whistleblower can result not only in a private suit brought by the whistleblower but also in a unilateral SEC enforcement action. | |||
*On June 16, 2014, the SEC announced that it was taking enforcement action against Paradigm Capital Management, Inc. (“Paradigm”), a hedge fund advisory firm, for engaging in prohibited principal transactions and for retaliating against the whistleblower who disclosed the unlawful trading activity to the SEC. See Exchange Act Release No. 72393 (June 16, 2014). This was the first case in which the SEC exercised its authority under Dodd-Frank to bring enforcement actions based on retaliation against whistleblowers. | |||
*According to the order, Paradigm retaliated against its head trader for disclosing, internally and to the SEC, prohibited principal transactions with an affiliated broker-dealer while trading on behalf of a hedge fund client. The transactions were a tax-avoidance strategy under which realized losses were used to offset the hedge fund’s realized gains. | |||
*When Paradigm learned that the head trader had disclosed the unlawful principal transactions to the SEC, it retaliated against him by removing him from his position as head trader, changing his job duties, placing him on administrative leave, and permitting him to return from administrative leave only in a compliance capacity, not as head trader. The whistleblower ultimately resigned his position. | |||
*Paradigm settled the SEC charges by consenting to the entry of an order finding that it violated the anti-retaliation provision of Dodd-Frank and committed other securities law violations; agreeing to pay more than $1 million to shareholders and to hire a compliance consultant to overhaul their internal procedures; and entering into a cease-and-desist order. | |||
The SEC’s press release accompanying the order includes the following statement by Enforcement Director Andrew Ceresney: “Those who might consider punishing whistleblowers should realize that such retaliation, in any form, is unacceptable.” '''The Paradigm enforcement action suggests that whistleblower retaliation can result in liability far beyond the damages that a whistleblower can obtain in a retaliation action and that retaliation can invite or heighten SEC scrutiny.''' | |||
=='''Differences between SOX and Dodd-Frank Acts '''== | |||
This table identifies some of the major differences between the anti-retaliation provisions of SOX and Dodd-Frank. To maximize the potential recovery, a whistleblower could initially bring a SOX claim at OSHA and subsequently remove it to federal court and also bring a Dodd-Frank claim. Doing so could enable the whistleblower to recover double back pay and uncapped special damages. | |||
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! Topic Area !! SOX !! Dodd-Frank | |||
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| Scope of Coverage || Any company with a class of securities registered under section 12 of the Securities Exchange Act of 1934, or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934, including any subsidiary or affiliate whose financial information is included in the consolidated financial statements of such company, or nationally recognized statistical rating organization, or any officer, employee, contractor, subcontractor, or agent of such company. || Any employer | |||
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| Protection for internal whistleblowing || Yes || Internal whistleblowing protected only if individual has also reported a possible securities violation to the SEC | |||
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| Protection for whistleblowing to SEC || Yes || Yes | |||
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| Statute of Limitations || 180 days || 6 years | |||
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| Administrative Exhaustion || Must file initially with OSHA || None | |||
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| Arbitration || Exempt from mandatory arbitration || Not exempt | |||
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| Back pay || Ordinary back pay || Double back pay | |||
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| Special damages for emotional distress and reputational harm || Available || Not available | |||
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