On March 8, 2017, a divided panel of the Ninth Circuit issued an opinion in Somers v. Digital Realty Trust Inc. that further widened a circuit split on the issue of whether the anti-retaliation provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act apply to whistleblowers who claim retaliation after reporting internally or instead only to those who report information to the SEC. Following the Second Circuit’s 2015 decision in Berman v. [email protected] LLC, the Ninth Circuit panel held that Dodd-Frank protections apply to internal whistleblowers. By contrast, the Fifth Circuit considered this issue in its 2013 decision in Asadi v. G.E. Energy (USA), LLC and found that the Dodd-Frank anti-retaliation provisions unambiguously protect only those whistleblowers who report directly to the SEC.
Plaintiff Paul Somers alleged that Digital Realty Trust fired him after he made several reports to senior management regarding possible securities law violations. Somers only reported these possible violations internally at the company, and not to the SEC. After his employment was terminated, Somers sued Digital Realty, alleging violations of state and federal securities laws, including violations of the whistleblower protections under Dodd-Frank. Digital Realty moved to dismiss on the ground that Somers was not a “whistleblower” under Dodd-Frank. The district court denied the motion, deferring to the SEC’s interpretation that internal reporters are also protected from retaliation under Dodd-Frank.
The need to detect and investigate reported allegations of wrongdoing within a corporation has long been a fact of corporate life. In the last 15 years, however, a combination of circumstances has contributed to an explosion of activity in this area. Among the contributing factors was Congress’ passage of laws and related agency regulations encouraging and, in some cases, mandating that employees report suspected corporate misconduct; creating financial incentives for employees to do so; and prohibiting retaliation against those who report. For companies, understanding their obligations pursuant to this statutory regime and the unsettled issues still surrounding it is crucial both for purposes of complying with applicable law and responding appropriately to alleged wrongdoing. Recently Orrick attorneys drafted an article for the Review of Securities & Commodities Regulation that discusses certain significant whistleblowing provisions of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), as well as best practices for responding to tips where these statutes apply.
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Check out this week’s Employment Law and Litigation Blog post on the SEC’s Dodd-Frank Whistleblower Program.
Check out this week’s Employment Law and Litigation Blog post on the Dodd-Frank Act’s whistleblower retaliation provision.
The U.S. Securities and Exchange Commission recently announced the latest whistleblower bounty awarded under the Dodd-Frank Act, which authorizes rewards for original information about violations of securities laws. Whistleblowers can receive 10 percent to 30 percent of the money collected in an SEC enforcement action where the monetary sanctions imposed exceed $1 million.
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.” READ MORE
Two victories for employers last week in Dodd-Frank and SOX whistleblower cases may provide a basis for at least a sliver of optimism among employers and whistleblower defense lawyers hammered by a recent series of employee-favorable decisions under the two main federal statutes covering whistleblowing activity.
Banko v. Apple
In Banko v. Apple Inc., Case No. 3:13-cv-02977-RS, a Northern District of California judge dismissed a Dodd-Frank retaliation claim where the employee only made a complaint internally to management and never complained to the Securities and Exchange Commission (SEC). The court followed the reasoning of the Fifth Circuit in Asadi v. G.E. Energy (USA), L.L.C. (see Orrick’s prior blog post on Asadi) and rejected a broader interpretation of the Act adopted by four district courts and the SEC that Dodd-Frank covers internal reporting protected by the Sarbanes-Oxley Act (SOX) as well as reports to the SEC. READ MORE
Today the SEC announced that it is issuing a whistleblower award of over $14 million to a whistleblower who provided information that resulted in the recovery of investor funds. The significant whistleblower award comes after many critics have questioned the success of the SEC’s whistleblower award program which, to date, has only issued two much smaller awards since the program’s inception in 2011. The first award payment was issued in August 2012 for approximately $50,000. The second award, paid to three whistleblowers for information that stopped a sham hedge fund, has paid out approximately $25,000 with an expected total payout of $125,000. READ MORE
On July 17, 2013, the Fifth Circuit issued the first circuit court decision interpreting Dodd-Frank’s anti-retaliation provision. In Asadi v. G.E. Energy (USA), L.L.C., the Fifth Circuit held that, to be protected under Dodd-Frank’s anti-retaliation provision, an individual must be a “whistleblower,” which is defined by the statute as an individual who has made a report to the SEC. Notably, this holding directly conflicts with the SEC’s regulations interpreting the Act, as well as five district court decisions that had all held that employees who make internal reports to company management are protected under Dodd-Frank even if they did not make reports to the SEC.
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On November 15, 2012, the Securities and Exchange Commission released its Fiscal Year 2012 Annual Report on the Dodd-Frank Whistleblower Program (the “Report”), the first full-year report issued since the enactment of Dodd-Frank. The Report analyzes the 3,001 tips received over the last twelve months by the Commission’s Office of the Whistleblower (“OWB”) , which is responsible for the implementation and execution of the Commission’s whistleblower program. The Report also provides additional information on the whistleblower award evaluation process that resulted in its first (and only) award issuance in August 2012.
Activities of the Commission’s OWB
The OWB was created pursuant to Section 924(d) of the Dodd-Frank Act. OWB reviews and processes whistleblower tips through the Commission’s Tips, Complaints, and Referrals (“TCR”) System, leveraging resources of the Commission’s Office of Market Intelligence to evaluate tips and assign them to the appropriate division. OWB works closely with the Enforcement Division throughout the investigative process, serving as a liaison between the whistleblowers or their counsel and Enforcement staff. OWB arranges meetings between whistleblowers and investigators or subject matter experts within Enforcement to advance investigations. OWB also communicates with other agencies’ whistleblower offices, including the IRS, Department of Justice, Commodity Futures Trading Commission, and the Department of Labor’s OSHA. READ MORE