Sarbanes-Oxley Act

Regulators Offer Insights Into SEC, CFTC, and OSHA Whistleblower Program’s Trends and Priorities

On July 16, 2019, three prominent whistleblower law regulators spoke at PLI’s Corporate Whistleblowing in 2019, which was co-chaired by Orrick partners Mike Delikat and Renee Phillips. With the standard disclaimer that their comments and opinions were their own and not the official comments of their respective agencies, each spoke about their agencies’ whistleblower program’s current progress, challenges, and priorities. READ MORE

IRS Reports Record $312 Million In Whistleblower Bounties

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

Can You Hear The Whistle Now? SEC Proposes New Rule Amendments To Bolster the Bounty Program

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

Take It Outside: Supreme Court Unanimously Holds That Internal Reporting Is Not Protected Under Dodd-Frank

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

CEO’s Whistleblower Claims “Rest On Feet Of Clay”: Seventh Circuit Affirms Dismissal Of SOX and Dodd-Frank Case

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

Laying Down the Law(son): Jury Returns Defense Verdict in First SOX Whistleblower Case to Reach the U.S. Supreme Court

An individual who convinced a divided U.S. Supreme Court in 2014 that Sarbanes-Oxley’s (“SOX”) whistleblower protections extend to the employees of a public company’s contractors and subcontractors has ultimately lost her case before a federal jury in Massachusetts, thus ending her ten-year legal saga.

Lawson claimed that in 2005 she spotted what she believed were accounting irregularities at Fidelity that allowed the company to charge millions of dollars in excessive fees to mutual fund shareholders.  She never called Fidelity’s information hotline to report the inaccuracies, but instead filed a whistleblower tip a year later with the SEC regarding the alleged fraud.  While the SEC did not pursue an enforcement action against the company, Lawson claimed that Fidelity managers and employees harassed her and retaliated against her for the reporting by giving her lower performance ratings and bonuses.  Lawson resigned in 2007 and sought whistleblower protections under SOX. READ MORE

Court Rules Dodd-Frank Whistleblower Retaliation Claims Are Arbitrable

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

Show Me The Money: SEC Awards $2.5 Million To Government Agency Whistlleblower

Silver school PE sports whistle on white background Will the Whistle be Silenced? Dismantling Dodd-Frank

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.

Whistleblower’s Ability to Breach Confidentiality Agreement – Do the Ends Justify the Means?

It is common for employers to require employees whose job duties require access to confidential, sensitive, and/or proprietary information to sign confidentiality and/or non-disclosure agreements as a condition of employment. However, at least in limited circumstances involving whistleblowers, employers are finding that they may not be permitted to enforce such agreements under all circumstances.  READ MORE

Circuit Split on Whistleblower Protections Widens: Ninth Circuit Follows Second Circuit and Splits with Fifth Circuit in Holding That Internal Whistleblowers Are Protected by Dodd-Frank

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. READ MORE