The U.S. Securities Exchange Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”) administer whistleblower claims under the Sarbanes-Oxley Act of 2002. While the SEC has jurisdiction to regulate U.S. securities markets, the CFTC regulates the U.S. derivatives markets, which includes futures, swaps, and certain types of option contracts. In October, the CFTC’s Whistleblower Office (“WBO”) released its 2019 Annual Report (the “Report”) to two congressional subcommittees to provide insights into its whistleblower program and customer education initiatives. The Report provides an overview of the tips received by the WBO from October 1, 2018-September 30, 2019 (the “reporting period”), highlights several of the whistleblower awards from the past year, and discusses the WBO’s efforts to educate stakeholders about its whistleblower program. READ MORE
On May 6th, the Commodity Futures Trading Commission (“CFTC”) announced that it made a whistleblower award of approximately $1.5 million to an individual whistleblower. The individual provided information that assisted in the successful prosecution of a CFTC action and a related action brought by another federal regulator. In particular, the CFTC recognized that the whistleblower initially sought to report his or her concerns internally prior to reporting to the CFTC, and it enhanced the individual’s award as an incentive.
In making the announcement, the Director of CFTC’s Whistleblower Office Christopher Ehrman explained, “While there is no requirement that a whistleblower report internally before approaching the Commission, today’s award demonstrates that the Commission may pay enhanced awards to those that do – that is one of the positive factors set out in our rules for the Commission to consider in making its award determination.” Furthermore, the CFTC recognized that the information the claimant provided “was directly incorporated into strategy involving witness interviews, and his/her early assistance saved Commission resources through his/her explanation of a complex scheme.”
Since the beginning of the CFTC’s whistleblower program in 2014, the agency has awarded more than $85 million to whistleblowers.
In February, the Internal Revenue Service (IRS) released its FY 2018 Annual Report and announced a record-breaking year for the agency’s whistleblower program. Overall, whistleblowers provided information that contributed to the agency’s recovery of over $1.44 billion during the course of the year. As a result, the IRS awarded $312 million in bounty awards to whistleblowers in FY2018, an almost ten-fold increase from the $33.9 million in awards it made in FY2017. Of the 217 total awards the agency made to whistleblowers in FY 2018, 31 were mandatory awards under Internal Revenue Code section 7623(b) and 186 were discretionary awards under section 7623(a) (which applies to smaller cases). The average award percentage from the total amount collected was 21.7% – up from 16.6% in FY 2016 and 17.8% in FY 2017. READ MORE
The U.S. Commodity Futures Trading Commission (CFTC) announced earlier this month that it had awarded more than $2 million to an individual who provided “critical information through independent analysis of market data” contributing both to a successful CFTC action and related action brought by another federal regulator. The payout is the first of its kind for the CFTC because it is the first time the agency has awarded a whistleblower who was a company outsider. READ MORE
On June 28, the Securities Exchange Commission (“SEC” or “Commission”) voted to propose amendments to its whistleblower program. As SEC Chair Jay Clayton explained, the proposed changes would “strengthen the whistleblower program by bolstering the Commission’s ability to more appropriately and expeditiously reward those who provide critical information that leads to successful enforcement actions.” The SEC issued a press release outlining the proposed rules, which would: (1) provide the Commission with additional tools in making whistleblower awards; (2) clarify the requirements for anti-retaliation protection under the whistleblower statute; (3) provide interpretive guidance to help clarify the meaning of “independent analysis”; (4) increase efficiencies in the whistleblower claims review process; and (5) clarify various miscellaneous policies and procedures. READ MORE
In the Supreme Court’s first decision interpreting Dodd-Frank’s whistleblower retaliation provisions, the Court unanimously held that internal whistleblowing is not protected under Dodd-Frank. The highly anticipated ruling resolves a circuit split between the Second and Ninth Circuits, which held that such reporting was protected, and the Fifth Circuit, which held that it was not. The Court sided with the Fifth Circuit’s textual reading and held that no Chevron deference to the SEC’s interpretation of the statute was warranted because the statutory definition of “whistleblower” was clear. READ MORE
Earlier this month, the Seventh Circuit affirmed dismissal of a CEO’s whistleblower retaliation claims in a decision that should provide corporate defendants ammunition to fight SOX and Dodd-Frank whistleblower cases going forward.
In Verfuerth v. Orion Energy Systems, Inc., No. 16-3502 (7th Cir. Jan. 11, 2017), the plaintiff, founder and former CEO of Orion, claimed that Orion’s Board of Directors terminated him for cause in retaliation for making whistleblower complaints about perceived fraud on SEC reports and other managerial decisions. Orion asserted that it terminated Verfuerth for numerous legitimate reasons, including falling stock prices, Verfuerth’s intimidating leadership style, high rates of senior management turnover, and other business disagreements such as reimbursement for Verfuerth’s costly divorce. READ MORE
We have previously written about how Dodd-Frank retaliation cases are a mixed bag for employers and about the Supreme Court’s expansion of Sarbanes-Oxley (“SOX”) Whistleblower protections. A new decision from the Wisconsin District Court is another mixed win for employers who want to enforce arbitration agreements in Dodd-Frank and SOX retaliation cases. In a case of first impression in the Seventh Circuit, Wussow v. Bruker Corporation., No. 16-cv-444-wmc, 2017 WL 2805016 (W.D. Wis. June 25, 2017), the district court held that while arbitration of SOX whistleblower retaliation claims cannot be compelled, a similar cause of action for whistleblower retaliation under Dodd-Frank can be. READ MORE
The SEC has awarded $2.5 million to a government agency employee who reported misconduct by a company to the SEC and caused the SEC to open an investigation. While the SEC order granting the award acknowledged that government employees may be prohibited from receiving whistleblower awards in some circumstances, such as when the employee works for a “law enforcement organization,” the SEC nevertheless determined that although “certain components of Claimant’s governmental employer have law enforcement responsibilities, [ ] those responsibilities are housed in a separate, different component of the agency at which Claimant works.” The SEC further explained that “the record is clear that this is not a situation where a claimant sought to circumvent the potential responsibilities that his or her government agency might have to investigate or otherwise take action for the misconduct. We express no view on how an award determination might differ under that alternative circumstance.” Ultimately, because the individual provided the Commission with “credible information . . . significant ongoing assistance, and relevant testimony that accelerated the pace of the investigation,” the SEC found the $2.5 million bounty justified.
In a press release announcing the award, the SEC noted it has now awarded approximately $156 million to 45 whistleblowers since the program’s inception.
When Donald Trump was elected President of the United States in November, he vowed to “dismantle” the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). In its place, Trump promised to replace the law “with new policies to encourage economic growth and job creation.” Now a bill known as the Financial CHOICE Act may initiate the process to do just that. But at least with respect to Dodd-Frank’s whistleblower provisions, the Financial CHOICE Act would leave largely intact the current bounty programs that have already awarded tipsters over $150 million in the U.S. and abroad.