SEC Regional Office Director David Bergers recently emphasized the importance of a company’s whistleblower policy when deciding whether to file an enforcement action against a company. Bergers made his comments at an internal investigations panel on December 7, 2012 sponsored by the Massachusetts Lawyers Weekly. For more information about the panel, see Martha Kessler, Bergers Tells Issuers to Preserve Data Upon Learning of Possible Investigation, Bloomberg Securities Regulation & Law Report, 44 SRLR 2280 (Dec. 17, 2012).
Bergers noted that a company should show the SEC that it takes whistleblowers seriously, even if a particular whistleblower has issues that the company believes undermine his or her credibility. “We want to see that the company is taking their concerns seriously, and how they are talking about them,” Bergers said. The SEC wants to know that the company is “separating [the allegations] from whatever or whoever is making them.” The company that acknowledges that there has been a whistleblower complaint, but tells the SEC “first let us give you the employment file” may find itself at odds with the SEC’s approach to a whistleblower’s concerns. Although the SEC will consider information about the whistleblower, including material in an employment file, Bergers noted that the agency is primarily interested in what the company does with the whistleblower’s allegations and how it treats the whistleblower.
Let this serve as a reminder of the importance of a well-considered whistleblower policy in preparing for potential communications with the SEC.
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
In what may be one of the first Dodd-Frank retaliation claims to make it past a motion to dismiss, a federal court on September 25, 2012 issued a ruling attempting to harmonize the definition of “whistleblower” under the landmark statute with its protections against employer retaliation for engaging in whistleblower activities. Acting in accord with the SEC’s final rule on the statute as well as opinions from the few federal courts to have weighed in on the subject, the court sided with the alleged whistleblower.
For some eighteen years, Richard Kramer had served as the vice president of human resources and administration at Trans-Lux Corporation. In that role, he had a number of responsibilities related to Trans-Lux’s ERISA-governed pension plan. Concerned with what he saw as conflicts of interest and deficiencies in the pension plan committee’s composition and reporting, Kramer went to Trans-Lux’s leadership and later the board’s audit committee to sound the alarm. Kramer eventually sent a letter to the SEC the old-fashioned way—by regular mail—a choice that would later have significance in the case.
Within hours of Kramer reaching out to Trans-Lux’s audit committee with his concerns, Trans-Lux’s CEO and another Trans-Lux employee reprimanded Kramer, and went downhill from there: Kramer’s staff was reassigned, an investigation into him was launched by Trans-Lux’s in-house counsel, his responsibilities were diminished, and he was eventually terminated. Kramer later sued Trans-Lux, claiming among other things that the Company had retaliated against him in violation of Dodd-Frank. Trans-Lux moved to dismiss. Read More
On August 21, 2012, the Securities and Exchange Commission (SEC) announced that it has awarded its first whistleblower bounty, just over one year after the SEC’s Dodd-Frank whistleblower rules became effective. The SEC’s Claims Review Staff issued a short order, Release No. 34-67698, granting the whistleblower’s award, which notes that the SEC declined to award a claim to a second whistleblower involved in the action. Read More
The SEC came under scrutiny, including from U.S. Senator Charles Grassley, following an April 25, 2012 front page article in the Wall Street Journal which reported that the Agency had inadvertently revealed the identity of a whistleblower during an inquiry into his former employer.
The investigation involved Pipeline Trading Systems LLC, which runs stock trading platforms under its new name, Aritas Securities LLC. According to the article, an SEC Staff Attorney showed a notebook belonging to the whistleblower to a Pipeline executive during an interview. The executive recognized the handwriting regarding trades, meetings, and phone calls. Pipeline settled with the SEC on October 24, 2011. Read More
Recently, Sean McKessy, chief of the United States Securities and Exchange Commission (“SEC”) Office of the Whistleblower, reported on the increase in whistleblower tips that have come rolling into his newly created department. The SEC began monitoring these tips eight months ago when the final provisions of the Dodd-Frank Act enacted the whistleblower provisions in Section 21F of the Securities Exchange Act. Section 21F of the Exchange Act directs the SEC to make monetary awards to whistleblowers that voluntarily provide original information that leads to successful enforcement action resulting in the imposition of monetary sanctions exceeding $1,000,000. Qualifying whistleblowers can reap between 10 percent and 30 percent of the monetary sanctions. Read More
The Securities and Exchange Commission announced last week that it was awarding “cooperation credit” to an individual for his “substantial assistance” in the Commission’s investigation of his wrongdoing. Following on a similar announcement earlier last month, this is only the second time the Commission has credited an individual under its Cooperation Initiative.
The credit was announced as part of a settlement agreement with John Cinderey, a former vice-president at San Francisco-based United Commercial Bank. Like other executives at Commercial Bank, Cinderey was charged with violations of Section 13 of the Exchange Act for misleading auditors during the financial crisis of 2008. Cinderey, however, was able to settle the SEC’s claims against him without admitting or denying the allegations and without paying any fine (though he was given credit for a $40,000 civil penalty paid in another parallel case brought by the FDIC).
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