Whistleblower

Court is in Session: Three Employment Law Cases Before the Supreme Court to Watch This Term

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The United States Supreme Court is now in session and three cases stand out on the docket that private employers will want to follow. While not the blockbusters heard during the Court’s last session, these cases will address important issues ranging from the proper interpretation of Sarbanes-Oxley Act’s whistleblower provision to the breadth of the President’s recess-appointment power to what constitutes “changing clothes” under the FLSA. READ MORE →

Take Heart, Companies Can Win Whistleblower Cases: Two Key Victories Last Week in SOX and Dodd-Frank Cases

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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. READ MORE →

SEC Issues Huge Bounty Award of $14 Million to Whistleblower under Dodd-Frank

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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 →

SOX Gone Wild: Misappropriation and Transmission of Confidential Company/Employee Data to the Government Protected under SOX

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A whistleblower who took sensitive company data from his employer and turned it over to the IRS has won his retaliation claim at the Department of Labor under the Sarbanes-Oxley Act’s (“SOX”) whistleblower protection provisions. In Vannoy v. Celanese Corp., ALJ Case No. 2008-SOX-00064, ARB Case No. 09-118 (ALJ July 24, 2013), an Administrative Law Judge was presented with the question of whether Vannoy’s removal of highly sensitive company data and transmission of that data to the IRS constituted protected activity under SOX. Vannoy, who was formerly employed as the administrator of Celanese’s corporate credit card program, first allegedly complained internally that the company “misstated their financial records and underestimated their required tax burden potentially in millions.” Vannoy sought legal counsel and eventually reported the company’s alleged accounting misconduct to the IRS.  READ MORE →

Fifth Circuit Defines “Whistleblower” Narrowly Under Dodd-Frank

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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. Rejecting these analyses, the Fifth Circuit based its decision on the plain wording of the statute, which it found to be unambiguous in protecting only “whistleblowers” as defined by the Act. READ MORE →

Will the Latest Opinion by A District Court Adopting a Broad Definition of Who is a Whistleblower Encourage More Internal Reporting?

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In May, another New York federal district court ruled that an employee need not report a disclosure directly to the Securities and Exchange Commission (“SEC”) to be afforded the protections under the anti-retaliation provisions of the Dodd-Frank Act, but that internal disclosures within a company are covered. READ MORE →

SEC Releases First Full-Year Report on the Dodd-Frank Whistleblower Program: No Speedy Recoveries for Whistleblowers

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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 →

SEC Pays First Ever Dodd-Frank Whistleblower Bounty Award

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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 →

Dodd-Frank Anti-Retaliation Provision Does Not Apply Extraterritorially

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On June 28, 2012, a Texas District Court held that the Dodd-Frank’s anti-retaliation provision per se does not apply extraterritorially. In Asadi v. G.E. Energy (USA), LLC, Case No. 4:12-cv-00345 (S.D. Tex. June 28, 2012), the district court determined that Dodd-Frank’s anti-retaliation provision did not extend to or protect the plaintiff’s extraterritorial whistleblowing activity. Note that this decision does not apply to Dodd-Frank’s whistleblower bounty provisions, pursuant to which whistleblowers outside of the U.S. may be eligible for bounties for making reports of violations to the SEC.

The complaint alleged that Asadi was a U.S.-based employee who was working from an office in Jordan to secure and manage energy contracts with the Iraqi government. Asadi alleged that he notified his supervisors and a company ombudsperson of a potential violation of the Foreign Corrupt Practices Act (“FCPA”), whereupon GE Energy pressured him to step down, attempted to negotiate a severance, and eventually terminated his employment.

Applying the Supreme Court’s 2010 decision in Morrison v. National Australia Bank, Ltd., 130 S. Ct. 2869 (2010), the district court held that the absence of language regarding the extraterritoriality of Dodd-Frank’s anti-retaliation provision led to a presumption that it did not apply extraterritorially. The district court noted that Section 929P(b) of Dodd-Frank gave extraterritorial jurisdiction over specific enforcement actions brought by the SEC or the DOJ, but not to private actions such as the plaintiff’s. The district court also found persuasive a Department of Labor Administrative Review Board en banc holding that, because Dodd Frank’s amendments to SOX were silent as to extraterritoriality, the amendments could not be construed to extend the reach of SOX extraterritorially. See Villanueva v. Core Labs, NV, 2001 WL 6981989, ARB Case No. 09-108, ALJ Case No. 2009-SOX-6 (ARB Dec. 22, 2011). Thus, the district court concluded that Dodd-Frank’s anti-retaliation provision did not protect Asadi from alleged retaliation and granted GE Energy’s motion to dismiss.

Dodd-Frank Amendment Applies Retroactively, “Clarifies” SOX Section 806

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On July 9, 2012, a Southern District of New York court held that the Dodd-Frank Act applies retroactively to protect whistleblowers employed by subsidiaries of publicly-traded companies.

In Leshinsky v. Telvent GIT, S.A., Case No. 1:10-cv-04511-JPO (S.D.N.Y. July 9, 2012), the plaintiff, an employee of a non-publicly-traded subsidiary of a public company, brought a retaliation claim under Sarbanes-Oxley (“SOX”) Section 806. The plaintiff’s claims arose prior to Dodd-Frank’s amendments to Section 806 providing that no public company, including any subsidiary or affiliate whose financial information is included in the consolidated financial statements of such company, may retaliate against a whistleblowing employee.

In analyzing whether the Dodd-Frank amendment to SOX applied to the plaintiff’s claims, the court explained that generally speaking, a statute does not apply retroactively to conduct that occurred prior to a statute’s enactment; there is a presumption against retroactive legislation. When an amendment merely clarifies existing law, rather than substantively changing existing law, however, retroactivity may be appropriate. The court applied three factors to determine whether Dodd-Frank clarified Section 806: (1) whether Congress expressed legislative intent that Dodd-Frank Section 929A was a clarification that should be applied retroactively; (2) whether there was a conflict or ambiguity in the pre-amendment statutory text; and (3) whether the amendment was consistent with a reasonable interpretation of the original statute. The court determined that the Dodd-Frank amendment clarified the legislative intent of Dodd-Frank’s predecessor retaliation provision under SOX.

The court noted that the First Circuit’s April decision in Lawson v. FMR LLC, 690 F.3d 61 (1st Cir. 2012), did not preclude its holding and arguably supported its conclusion that the Dodd-Frank amendments were a necessary clarification to prevent an improper reading of the statute’s protections. See previous blog entry.