United States: A Review Of Recent Whistleblower Developments - 12 April 2016

  • SEC Awards Bounty to Whistleblower, But Offsets Award for a Judgment Against the Whistleblower
  • CFTC Awards Whistleblower More Than $10 Million
  • SEC Awards Nearly $2 Million to Three Whistleblowers
  • SEC Continues to File Amicus Briefs in Support of Its Definition of "Whistleblower"
  • SEC Pays First Whistleblower Award to "Company Outsider"
  • Third Circuit Affirms Dismissal of SOX Whistleblower Case

SEC Awards Bounty to Whistleblower, But Offsets Award for a Judgment Against the Whistleblower

The extent to which the SEC would reward whistleblowers, who themselves engaged in wrongdoing, has been the subject of considerable debate since the SEC promulgated its Dodd-Frank Act whistleblower rules in 2011. A recent order makes this significant as it appears to confirm that the SEC will pay whistleblower awards to wrongdoers — even those against whom the SEC has a judgment arising from the whistleblower's conduct in the very case that has led to the award.

On April 7, 2016, the SEC ordered that a whistleblower would receive more than $275,000 for having provided information that led to monetary sanctions collected in an undisclosed enforcement matter filed in federal district court. The redacted order, however, suggests that the whistleblower in the case may have been a party that the SEC found to be liable for wrongdoing in connection with the same or a related matter. Specifically, the award states that the whistleblower's award shall be subject to an offset for any obligation that remains unpaid from the "final judgment" entered against the whistleblower in an undisclosed matter.

CFTC Awards Whistleblower More Than $10 Million

On April 4, 2016, the U.S. Commodity Futures Trading Commission (CFTC) announced its largest whistleblower award to date ̶ more than $10 million. The award is the third, and by far the largest, whistleblower award the CFTC has issued since the Dodd-Frank Act authorized it to pay bounties to individuals who provide the CFTC with original information that leads to enforcement actions yielding more than $1 million in sanctions. The CFTC did not identify the subject enforcement action or percentage of the monetary sanctions that were awarded to the whistleblower, but the CFTC noted that the whistleblower's information was "sufficiently specific, credible, and timely to cause the Commission to open an investigation." The CFTC added that it based the amount of the award on the significance of the whistleblower's information, the degree of assistance the whistleblower provided, and the Commission's programmatic and law enforcement interests. The Commission further noted that the whistleblower did not participate or have any involvement in the violations, did not participate and or interfere with internal complaints and reporting systems, and did not unreasonably delay reporting the information to the Commission.

SEC Awards Nearly $2 Million to Three Whistleblowers

The SEC recently announced the payment of approximately $2 million to three whistleblowers who provided information to the SEC that led to a qualifying enforcement action. The SEC said in a press release that the largest of the three awards, approximately $1.8 million, would go to the whistleblower who provided the information that prompted the SEC to open its investigation and who continued to provide valuable information throughout the investigation. The other two whistleblowers will receive approximately $65,000 each for providing information. These two whistleblowers appealed a preliminary determination of their respective awards, but the SEC upheld the preliminary determination. In that decision, the SEC noted that the information provided by the other two whistleblowers was submitted approximately 18 months after the original whistleblower submitted information that caused the SEC staff to open its investigation.

SEC Continues to File Amicus Briefs in Support of Its Definition of "Whistleblower"

The SEC continues to file amicus briefs in an effort to convince federal courts that the Dodd-Frank Act protects whistleblowers from retaliation regardless of whether they provided information to the SEC before adverse action was taken against them.

The SEC filed an amicus brief in Verble v. Morgan Stanley Smith Barney, LLC, No. 15-6397, which is now on appeal at the U.S. Court of Appeals for the Sixth Circuit. The district court dismissed the plaintiff's Dodd-Frank retaliation claim because the plaintiff provided information to the SEC only after he had been terminated and thus was not a "whistleblower" under 15 U.S.C. § 78U-6(a)(6). [See January 7, 2016, Legal News, "Tennessee Federal Court Dismisses Whistleblower Retaliation Claims and Declines to Follow Berman v. Neo@Ogilvy. The SEC's brief in support of the whistleblower's position did not address the particular facts of the case, but rather described the ongoing debate between the courts as articulated in Asadi v. G. E. Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013) and Berman v. Neo@Ogilvy LLC, 803 F.3d 145 (2nd Cir. 2015), noting that the Second Circuit in Berman elected to defer to the SEC's interpretation of its whistleblower rules.

The SEC also has weighed in regarding the retaliation suit David Danon filed against Vanguard Group Inc., arguing in an amicus brief filed in the U.S. District Court for the Eastern District of Pennsylvania that Danon's internal complaints qualified for whistleblower protection under the anti-retaliation provisions of the Dodd-Frank Act. The Vanguard litigation has been the subject of much attention because Danon was an in-house attorney at Vanguard, who alleged in a New York state court qui tam case that Vanguard had charged artificially low prices to its related funds for investment management and administrative services to avoid paying federal and state income tax on the profits. A judge dismissed that suit in late 2015, ruling that Danon could not proceed with his complaint because he was prohibited from disclosing Vanguard's confidential information under New York's attorney ethics code. In his federal lawsuit, Danon now pursues, among other things, Dodd-Frank retaliation claims.

SEC Pays First Whistleblower Award to "Company Outsider"

The SEC announced in January that it had awarded more than $700,000 to a "company outsider," who provided the SEC with a detailed analysis that resulted in a successful SEC enforcement action. In its press release announcing the award, the SEC's Director of the Division of Enforcement Andrew Ceresney said: "The voluntary submission of high-quality analysis by industry experts can be every bit as valuable as first-hand knowledge of wrongdoing by company insiders." Sean McKessy, the chief of the SEC's Office of the Whistleblower added: "We welcome analytical information from those with in-depth market knowledge and experience that may provide the springboard for an investigation." While the Dodd-Frank framework clearly contemplates whistleblower awards to company outsiders, this award was the first of its kind.

Several weeks after the SEC's announcement, Eric Scott Hunsader came forward in media interviews and revealed himself to be the whistleblower who had received the award. Hunsader, who owns a market data firm, said that he discovered that traders, using one of the New York Stock Exchange's proprietary data feeds, received a head start over those that used the consolidated feed. Believing that this was against SEC regulations, Hunsader said he submitted his findings to the SEC and had a meeting shortly thereafter with the SEC enforcement staff.

While the award to Hunsader was the first of its kind, it is unlikely to be the last. It no doubt causes further concern for executives who are already worried about their employees raising issues to the SEC rather than registering complaints internally. The possibility that outside analysts and industry experts may be looking for securities violations in order to reap whistleblower awards only reinforces that companies should be on the lookout for wrongdoing and seek to remedy it before others identify it.

Third Circuit Affirms Dismissal of SOX Whistleblower Case

In Weist v. Tyco Electronics Corp., 812 F.3d 310 (3d Cir. 2016), the Third Circuit affirmed the dismissal of a Sarbanes-Oxley (SOX) whistleblower retaliation claim that has been the subject of numerous court decisions. The plaintiff, a manager in Tyco's accounts payable department, allegedly raised concerns regarding certain expenses and invoices submitted in connection with extravagant Tyco events. The case had been to the Third Circuit a few years earlier. In Weist v. Lynch, 710 F.3d 121 (3d Cir. 2013), the Third Circuit joined the growing number of courts giving deference to the U.S. Department of Labor Administrative Review Board's new requirements for pleading "protected activity" under § 806 of SOX, and rejecting prior case law holding that violations of misconduct under SOX must "definitively and specifically" relate to one of the enumerated categories of violation in § 806 of SOX. After remand, the district court ultimately granted summary judgment in Tyco's favor, concluding that the plaintiff had not shown that his complaints were a "contributing factor" to his discharge. On appeal, the Sixth Circuit defined a "contributing factor" as "any factor, which alone or in combination with other factors, tends to affect in any way the outcome of the decision." Despite this liberal standard, the court, nevertheless, found that the plaintiff had failed to show that his complaints were a contributing factor in his termination.

The Weist decision highlights the importance of a credible investigation in defeating a whistleblower retaliation claim. The court noted the temporal proximity between the plaintiff's complaints and the adverse employment action, which came approximately 10 months later after an internal investigation regarding sexual harassment allegations. The court further noted the plaintiff had received praise and commendation during and after his complaints. The court applauded the integrity of the company's investigation that resulted in the termination, noting, among other things, that the human resource department members investigating sexual harassment claims against the plaintiff were not aware of his protected activity.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.