Difference between revisions of "Whistleblower Protection Laws"

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='''RICO Prohibition Against SEC Whistleblower Retaliation'''=
='''RICO Prohibition Against SEC Whistleblower Retaliation'''=
Section 1107 of SOX, 18 U.S.C. § 1513(e), criminalizes whistleblower retaliation. It provides:
Section 1107 of SOX, 18 U.S.C. § 1513(e), '''criminalizes whistleblower retaliation.''' It provides:
*Whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing a law enforcement officer any truthful information relating to the commission or possible commission of any federal offense, shall be fined under this title, imprisoned not more than 10 years, or both.


Whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing a law enforcement officer any truthful information relating to the commission or possible commission of any federal offense, shall be fined under this title, imprisoned not more than 10 years, or both.
As Section 1513(e) is a predicate offense under the '''Racketeer Influenced and Corrupt Organizations Act''' (RICO), there is a private right of action to remedy a violation of 1513(e).  Protected conduct includes reporting a possible criminal securities law violation to the SEC.  RICO is a potent remedy because it authorizes treble damages.  18 U.S.C. § 1964(c).
 
As Section 1513(e) is a predicate offense under the Racketeer Influenced and Corrupt Organizations Act (RICO), there is a private right of action to remedy a violation of 1513(e).  Protected conduct includes reporting a possible criminal securities law violation to the SEC.  RICO is a potent remedy because it authorizes treble damages.  18 U.S.C. § 1964(c).


In ''DeGuelle v. Camilli,'' 664 F.3d 192 (7th Cir. 2011), DeGuelle, a tax employee of S.C. Johnson & Son, Inc. (“SCJ”), was terminated after reporting an alleged tax scheme to his employer and federal agencies.  Over an eight year period beginning in 2001, DeGuelle relayed a series of concerns regarding SCJ tax practices to Daniel Wenzel, Global Tax Counsel of SCJ.  Wenzel directed DeGuelle to alter or destroy documents to avoid detection of a tax issue that DeGuelle brought to Wenzel also instructed DeGuelle and another employee to fabricate a business transaction in order to exploit accounting rules for the company’s benefit.  DeGuelle finally met with Camilli, Director of Human Resources, to discuss that Wenzel was creating a hostile work environment.  DeGuelle also spoke with Gayle Kosterman who informed DeGuelle that the company hired a law firm to investigate his tax fraud allegations and DeGuelle spoke with attorneys from the firm.
In ''DeGuelle v. Camilli,'' 664 F.3d 192 (7th Cir. 2011), DeGuelle, a tax employee of S.C. Johnson & Son, Inc. (“SCJ”), was terminated after reporting an alleged tax scheme to his employer and federal agencies.  Over an eight year period beginning in 2001, DeGuelle relayed a series of concerns regarding SCJ tax practices to Daniel Wenzel, Global Tax Counsel of SCJ.  Wenzel directed DeGuelle to alter or destroy documents to avoid detection of a tax issue that DeGuelle brought to Wenzel also instructed DeGuelle and another employee to fabricate a business transaction in order to exploit accounting rules for the company’s benefit.  DeGuelle finally met with Camilli, Director of Human Resources, to discuss that Wenzel was creating a hostile work environment.  DeGuelle also spoke with Gayle Kosterman who informed DeGuelle that the company hired a law firm to investigate his tax fraud allegations and DeGuelle spoke with attorneys from the firm.
*Wenzel told DeGuelle to keep his complaints about the tax department within the department, instead of taking them to human resources.  Wenzel made disparaging comments towards DeGuelle in front of other employees and acted aggressively towards him.  DeGuelle received a negative performance review, which was conducted off-cycle and at odds with the award he received earlier that year recognizing his stellar performance.
*On September 10, 2008, DeGuelle and Camilli met again to discuss DeGuelle’s safety concerns relating to Wenzel’s behavior.  Later that month, DeGuelle and Wenzel had another verbal altercation and DeGuelle received a negative review from Wenzel.  DeGuelle spoke with Camilli alleging that the negative review was in retaliation for his whistleblowing, which she said she would investigate. 
*In November, DeGuelle contacted Camilli in writing to inform her that if the company did not take action, he would contact state or federal authorities regarding the retaliation. 
*On December 18, 2008 DeGuelle was informed that the negative review was retaliatory and would be revoked. DeGuelle was directed to drop his tax fraud complaints, but DeGuelle said he would file a whistleblower complaint with the Department of Labor.  The company offered a salary increase and offered to pay part of his attorney fees if he signed a confidentiality agreement and release of claims. 
*Instead, on December 18, 2008, DeGuelle filed a complaint under SOX with the Department of Labor, attaching tax documents, financial statements and internal communications to his complaint. 
*In January 2009, DeGuelle met with Kosterman to withdraw his salary request, fearing that it could be viewed as an attempt to profit from the company’s tax fraud. 
*On February 17, 2009, the DOL determined that SCJ was not a covered entity under SOX.  ''Id.'' at 197.
*On March 10, 2009 SCJ sent another fraudulent tax return to the IRS. 
*On March 19, 2009 DeGuelle sent a memorandum detailing his concerns to SCJ counsel, after which Kosterman offered him a year’s salary if he were to resign and signed a confidentiality agreement and released all claims. 
*On April 9, 2009, SCJ began investigating DeGuelle for disclosing confidential company documents.  DeGuelle met with Camilli and other investigators and denied disclosing documents, but admitted that he attached them to the DOL complaint, asserting that Camilli was aware of those disclosures. 
*After that meeting, Kosterman and another employee placed DeGuelle on administrative leave, ultimately terminating him for taking and disclosing confidential business documents.  SCJ filed suit in Racine County Circuit court seeking recovery of SCJ property and confidential information and for breach of contract and conversion.  Following the suit, SCJ made defamatory statements about DeGuelle in the media.
*DeGuelle then filed suit in federal court alleging multiple claims, including RICO violations.  ''Id.'' at 198.


Wenzel told DeGuelle to keep his complaints about the tax department within the department, instead of taking them to human resources.  Wenzel made disparaging comments towards DeGuelle in front of other employees and acted aggressively towards him.  DeGuelle received a negative performance review, which was conducted off-cycle and at odds with the award he received earlier that year recognizing his stellar performance.  On September 10, 2008, DeGuelle and Camilli met again to discuss DeGuelle’s safety concerns relating to Wenzel’s behavior.  Later that month, DeGuelle and Wenzel had another verbal altercation and DeGuelle received a negative review from WenzelDeGuelle spoke with Camilli alleging that the negative review was in retaliation for his whistleblowing, which she said she would investigate.  In November, DeGuelle contacted Camilli in writing to inform her that if the company did not take action, he would contact state or federal authorities regarding the retaliation.  On December 18, 2008 DeGuelle was informed that the negative review was retaliatory and would be revoked. DeGuelle was directed to drop his tax fraud complaints, but DeGuelle said he would file a whistleblower complaint with the Department of Labor.  The company offered a salary increase and offered to pay part of his attorney fees if he signed a confidentiality agreement and release of claims.  Instead, on December 18, 2008, DeGuelle filed a complaint under SOX with the Department of Labor, attaching tax documents, financial statements and internal communications to his complaint.  In January 2009, DeGuelle met with Kosterman to withdraw his salary request, fearing that it could be viewed as an attempt to profit from the company’s tax fraud.  On February 17, 2009, the DOL determined that SCJ was not a covered entity under SOX.  Id. at 197.
The district court dismissed the RICO claims, holding that the tax fraud and retaliation are unrelated offenses and thus do not form a pattern of racketeering activityThe district court also reasoned that since by the time the retaliation occurred, the government was already aware of alleged tax fraud, the predicate offenses were not the proximate cause of DeGuelle’s injuries.   
 
On March 10, 2009 SCJ sent another fraudulent tax return to the IRS.  On March 19, 2009 DeGuelle sent a memorandum detailing his concerns to SCJ counsel, after which Kosterman offered him a year’s salary if he were to resign and signed a confidentiality agreement and released all claims.  On April 9, 2009, SCJ began investigating DeGuelle for disclosing confidential company documents.  DeGuelle met with Camilli and other investigators and denied disclosing documents, but admitted that he attached them to the DOL complaint, asserting that Camilli was aware of those disclosures.  After that meeting, Kosterman and another employee placed DeGuelle on administrative leave, ultimately terminating him for taking and disclosing confidential business documents.  SCJ filed suit in Racine County Circuit court seeking recovery of SCJ property and confidential information and for breach of contract and conversionFollowing the suit, SCJ made defamatory statements about DeGuelle in the media.  DeGuelle then filed suit in federal court alleging multiple claims, including RICO violations.  Id. at 198.


The district court dismissed the RICO claims, holding that the tax fraud and retaliation are unrelated offenses and thus do not form a pattern of racketeering activity.  The district court also reasoned that since by the time the retaliation occurred, the government was already aware of alleged tax fraud, the predicate offenses were not the proximate cause of DeGuelle’s injuries.  The Seventh Circuit Court of Appeals reversed, holding that “[r]etaliatory acts are inherently connected to the underlying wrongdoing exposed by the whistleblower…   Accordingly, we believe a relationship can exist between § 1513(e) predicate acts and predicate acts involving the underlying cause for such retaliation.”  Id at 201.  The court determined that despite SCJ officials’ attempts to investigate DeGuelle’s concerns and protect him from retaliation, SCJ can still be held liable for retaliatory termination.  The court also noted that a whistleblower does not have to show that the same officials participated in both the crime and the retaliation.
The Seventh Circuit Court of Appeals reversed, holding that “[r]etaliatory acts are inherently connected to the underlying wrongdoing exposed by the whistleblower…   Accordingly, we believe a relationship can exist between § 1513(e) predicate acts and predicate acts involving the underlying cause for such retaliation.”  ''Id'' at 201.  The court determined that despite SCJ officials’ attempts to investigate DeGuelle’s concerns and protect him from retaliation, SCJ can still be held liable for retaliatory termination.  The court also noted that a whistleblower does not have to show that the same officials participated in both the crime and the retaliation.


Following ''DeGuelle,'' in ''Simkus v. United Airlines,'' No. 11 C 2165, 2012 WL 3133603, (N.D. Ill. July 31, 2012), Simkus brought a suit against United Airlines under RICO.  Simkus alleged two predicate acts in his civil RICO suit that occurred within a ten year period, mail and wire fraud related to United providing Simkus with incorrect information regarding his stock allocation in 2006 and retaliation against Simkus in violation of SOX for reporting asbestos violations to the Occupational Health and Safety Administration (OSHA).  The court found that these two acts failed the “continuity plus relationship” test.  Unlike the alleged tax fraud and retaliation committed by SCJ, there was no relationship between the two acts alleged by Simkus. Id. at *3-4.
Following ''DeGuelle,'' in ''Simkus v. United Airlines,'' No. 11 C 2165, 2012 WL 3133603, (N.D. Ill. July 31, 2012), Simkus brought a suit against United Airlines under RICO.  Simkus alleged two predicate acts in his civil RICO suit that occurred within a ten year period, mail and wire fraud related to United providing Simkus with incorrect information regarding his stock allocation in 2006 and retaliation against Simkus in violation of SOX for reporting asbestos violations to the Occupational Health and Safety Administration (OSHA).  The court found that these two acts failed the “continuity plus relationship” test.  Unlike the alleged tax fraud and retaliation committed by SCJ, there was no relationship between the two acts alleged by Simkus. Id. at *3-4.