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On 16 June 2014, the SEC announced the settlement of a case concerning workplace retaliation against a whistleblower and the underlying allegations that the whistleblower reported. This is the first action to be brought under the whistleblower anti-retaliation provision of the securities regulatory scheme enacted through the Dodd-Frank Act in response to the recent financial crisis.
This action arose out of a whistleblower's report to the SEC that a hedge fund adviser and its owner engaged in improperly disclosed principal transactions. The whistleblower, who was the fund's head trader, reported these activities in late March 2012. Starting in July 2012, after the whistleblower revealed to the hedge fund owner that he reported the principal transactions to the SEC, the whistleblower was subjected to several adverse employment actions, including being demoted from head trader, tasked with investigating the conduct he complained of, and generally being marginalised at work. All of these actions culminated in the whistleblower resigning from his job in August 2012.
The settlement with the SEC states that the company violated the anti-retaliation provision of the Exchange Act by taking adverse employment actions against the whistleblower because of his report to the SEC. In addition, the settlement lists violations related to the underlying conduct at issue. In order to settle the charges, the company and owner agreed to pay $2.2 million and the company agreed to hire an independent compliance consultant.
This action highlights the SEC's new whistleblower enforcement power under the Dodd-Frank Act. The chief of the SEC's whistleblower office explained in a press release that "[f]or whistleblowers to come forward, they must feel assured that they're protected from retaliation . . . We will continue to exercise our anti-retaliation authority . . . where a whistleblower is wrongfully targeted for doing the right thing and reporting a possible securities law violation." This matter suggests that in addition to other types of whistleblower-related enforcement actions, the SEC is ready to pursue retaliation claims when adverse employment actions are taken against whistleblowers. Companies should consult counsel on how to avoid taking actions vis-a-vis known or suspected whistleblowers that might be perceived or portrayed as retaliatory.
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