Whistleblower

Germany’s Financial Regulator Establishes New Whistleblower Platform

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Last week, Germany’s Financial Supervisory Authority (BaFin) unveiled a centralized platform for receiving whistleblower complaints, including anonymous complaints, of alleged violations of supervisory provisions within the financial sector.  The move appears to represent a shift in German ideology toward a more favorable view of anonymous reporting, which for many years was discouraged in Germany and more broadly in the EU due to the risk of “organized systems of denouncement.”  Under the new program, whistleblowers may submit reports in writing (on paper or electronically), by phone (with or without recording the conversation), or verbally.  BaFin’s press release announcing the program states that it will make the anonymity of whistleblowers a “top priority,” and that it will not pass on the identity of whistleblowers to third parties.  The program is “aimed at person with a special knowledge of a company’s internal affairs – for example because they are employed there or have some other contractual relationship or relationship of trust with the company.”

BaFin was required to implement this new platform due to an amendment to the German Act on Financial Services Supervision.  Notably, the Act only applies to the financial services sector, not including external accountants, tax consultants and attorneys. It provides that employees working in the financial services sector may not be held liable for reporting potential or actual breaches of law under either employment law or criminal law, unless the report was false or grossly negligent.

In addition to BaFin’s own platform, the Act requires covered financial institutions to provide internal procedures for employees to report violations of supervisory rules, including anonymously. However, the Act provides no details as to implementation, Board responsibilities, or the protection of whistleblowers. Therefore, banks and insurers will want to stay abreast of further developments in this area.

Notably, the German Act implements an EU regulation recently adopted, and reporting procedures regarding violations of supervisory rules are currently being harmonized throughout Europe.  As a result, financial institutions can expect similar provisions to be enacted in other EU jurisdictions. The German act is also another example of the growing efforts of governments to encourage reporting of wrongdoing to regulators. For example, the Ontario Securities Commission recently enacted regulations patterned after Dodd-Frank which will become effective on July 14 that establish a whistleblower office at OSC which will provide for cash awards to whistleblowers whose reports result in enforcement actions and fines.

In light of these important developments, companies with German operations, particularly in the financial services sector, should review and update their whistleblower policies and procedures to ensure they are in accordance with the new law and with best practices.  Companies will want to have robust mechanisms for employees, as well as vendors and other third parties, to report violations of law internally and for those concerns to be promptly and properly investigated.  By creating a trusting environment for whistleblowers to report internally, a company can go a long way toward uncovering and remedying violations of law quickly and effectively and without regulatory intervention.

Tipping the Scales: Whistleblower Awarded $3.5 Million For Information That Advanced SEC Investigation

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Last Friday, the SEC announced a whistleblower award of more than $3.5 million to an employee whose tip advanced an SEC investigation into the whistleblower’s company.  According to the Order, while the information the whistleblower provided did not cause the SEC to open a new line of inquiry, the information “significantly contributed” to the SEC’s ongoing investigation by focusing the Commission on a particular issue and providing the agency with additional settlement leverage during its negotiations with the company.

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O Canada: The U.S.’s Neighbor To The North Proposes Its Own Whistleblower Program

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The Ontario Securities Commission (“OSC”), Canada’s largest securities regulator, has proposed establishing its own whistleblower program for individuals to report suspected securities fraud, marking Canada’s first foray into establishing such a system.

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Avoiding The Risk Of Cybersecurity Whistleblowers

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With the rise of the cybersecurity whistleblower, there is a growing trend of whistleblower-initiated regulatory investigations. In this Law360 article, Orrick attorneys Renee Phillips, Aravind Swaminathan, and Shea Leitch examine the DOJ’s investigation, prompted by a cybersecurity whistleblower, into whether Tiversa Holding Corp. provided false information to the Federal Trade Commission about data breaches at companies that declined to purchase its data protection services. The article discusses what companies can do to protect themselves against this growing risk.

Bonus Points: ARB Upholds Whistleblower Order Challenging Bonus Plan

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The Department of Labor’s Administrative Review Board (“ARB”) recently upheld an order finding a semiconductor company had constructively discharged a manager who complained the company’s bonus plan violated state wage and hour laws, and in doing so, broadly interpreted the protections offered under the Sarbanes-Oxley Act (“SOX” or “Act”).

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On My Whistle: Are You Up to Speed in the UK with the Financial Conduct Authority’s New Rules on whistleblowing?

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Relevant firms in the UK have until March 7, 2016 to appoint a “whistleblowers’ champion,” who then has until September 7, 2016 to oversee their firm’s readiness for the new whistleblowing regime.

The new whistleblowing regime: why make the change?

Since the 2013 Parliamentary Commission on Banking Standards recommendations were published in the UK, the Financial Conduct Authority (“FCA”) has been examining ways to ensure that individuals working in financial services feel able and encouraged to speak up when they have concerns to avoid the same financial scandals of the past.

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So You Want to Accept That Board Position? One More Reason to Pause: Directors Can Be Personally Liable Under Sarbanes-Oxley and Dodd-Frank

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On October 23, 2015, in a suit filed by Bio-Rad’s former general counsel Sanford Wadler, the United States District Court for the Northern District of California issued a decision granting in part and denying in part Defendants’ motion to dismiss in Wadler v. Bio-Rad Labs, Inc. (No. 15-CV-02356-JCS, 2015 WL 6438670 (N.D. Cal. Oct. 23, 2015), holding, among other things, that corporate directors may be held personally liable for retaliating against a whistleblower under both the Sarbanes-Oxley Act of 2002 (SOX) and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank).

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D.C. Circuit Confirms: Attorney-Client Privilege Applies to Internal Investigations of Whistleblower Complaints Conducted at the Direction of Counsel

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The ability to preserve privilege for highly sensitive internal investigations conducted at the direction of attorneys is alive and well.  In a closely watched decision on the scope of the attorney-client privilege as applied to internal investigations, the D.C. Circuit granted defense contractor Kellogg Brown & Root’s (“KBR”) petition for a writ of mandamus and vacated a district court’s order that privileged documents from an internal investigation must be produced.

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Sixth Circuit Affirms $250K Victory to SOX Whistleblower and Provides Broad Interpretation of SOX

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On May 28, 2015, the Sixth Circuit in Rhinehimer v. U.S. Bancorp Investments, Inc. affirmed a $250,000 jury verdict in favor of a former financial advisor for U.S. Bancorp Investments (“USBII”) who alleged that he had been terminated in violation of the Sarbanes-Oxley Act (“SOX”) whistleblower provisions.  In doing so, the Sixth Circuit rejected the “definitively and specifically” standard for proving protected activity under SOX and abrogated its prior SOX decision in Riddle v. First Tennessee Bank Nat’l Assoc., 497 F. App’x 588 (6th Cir. 2012) to the extent it relied upon the standard.

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Whistle While You Work: SEC Announces First Retaliation Whistleblower Award

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On June 16, 2014, the SEC issued its first-ever charge of whistleblower retaliation under section 922 of the Dodd-Frank Act, charging a hedge fund advisor and its owner with “engaging in prohibited principal transactions and then retaliating against the employee who reported the trading activity to the SEC.”

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