United States: A Review Of Recent Whistleblower Developments - November 8, 2018

Whistleblower Developments is a periodic report covering significant cases, decisions, proposals, and legislation related to whistleblower statutes and how they may impact your business. Recent developments include:

  • Company Accused of Spoliating Evidence in a SOX Whistleblower Suit
  • SEC Awards $54 Million to Whistleblowers, Bringing its Total Whistleblower Program Awards Over $320 Million
  • CFTC Issues First Overseas Whistleblower Award

Company Accused of Spoliating Evidence in a SOX Whistleblower Suit

This summer, a Sarbanes-Oxley Act (SOX) whistleblower asked a Texas federal trial to court to sanction Cisco Systems Inc. for allegedly destroying evidence related to the whistleblower's lawsuit accusing the company of firing her in retaliation for investigating another employee.

According to the whistleblower plaintiff, after firing her, Cisco employees destroyed files on her work computer and did not issue a litigation hold to a key witness. This spoliation allegedly happened despite the company and its attorneys being aware of a potential lawsuit against the Company, and that her computer held potentially important evidence. Moreover, according to the SOX whistleblower, the company did not issue a litigation hold to the individual targeted by her pre-termination investigation, and allowed him to keep his work computer at his home for over a year. The whistleblower plaintiff also pointed out to the court that the company's counsel did not notify her that the company had not preserved the files or put the investigation subject under a litigation hold until just before trial was about to begin.

The whistleblower's work computer, prior to being erased, included numerous emails, instant messages, calendar entries, and other files and communications that she considered important to prevailing on her SOX retaliation claims. The whistleblower further claimed that, in light of the other employee being allowed to keep his work computer at his home for over a year, there was no way for any of the parties to know how he may or may not have altered or deleted relevant files on that computer.

In her spoliation motion, the SOX whistleblower asks the Court to instruct the trial jury to presume that, because those files were destroyed or otherwise not preserved, that evidence would have been favorable to her claims against the Company. Interestingly, the SOX whistleblower subsequently voluntarily withdrew her spoliation motion, and voluntarily dismissed her case.

SEC Awards $54 Million to Whistleblowers, Bringing its Total Whistleblower Program Awards Over $320 Million

In September 2018, the U.S. Securities and Exchange Commission (SEC) announced that it had awarded two unidentified whistleblowers a combined total of $54 million for their roles in two separate enforcement actions. These awards bring the SEC's total whistleblower award program payout total to more than $320 million.

The two whistleblower awards were for $39 million and $15 million, respectively, and each constitute the second- and eighth-largest awards the SEC has made since the whistleblower award program's inception in 2011. The largest award to date was $50 million and was split between two separate whistleblowers in March of 2018.

Also in September, the SEC announced two additional whistleblower awards. One award was to an overseas whistleblower and totaled $4 million. The second award totaled $1.5 million, which the order noted had been reduced because the recipient did not promptly report the misconduct and benefited financially during the delay.

To date, the SEC has awarded over $326 million to 59 individuals since issuing its first award in 2012. At the same time, the SEC has reported more than $1.7 billion in monetary sanctions ordered against violators on actionable information received from whistleblowers.

CFTC Issues First Overseas Whistleblower Award

In July 2018, the U.S. Commodity Futures Trading Commission (CFTC) for the first time issued a foreign resident whistleblower a bounty just a few days after handing out its largest award to date. The unidentified foreign resident received an award in excess of $70,000, representing between ten and thirty percent of an unspecified penalty paid to the CFTC for a violation of the Commodities Exchange Act.

In making the award, the CFTC described the foreign resident recipient as a "junior-level employee" of the penalized entity. The whistleblower took part in the violation but was acting at the direction of the employer and did not directly profit from the violation. As a result, the whistleblower remained eligible to receive an award from the CFTC. According to the CFTC, when the whistleblower provided the CFTC with the information that led to the award, the whistleblower did not know about the CFTC award program. (It is worth noting that, in contrast with the SEC's Whistleblower Program, the CFTC's program does not appear to require whistleblowers to report internally before they become eligible for a whistleblower award.) After the agency finished its enforcement action following receipt of the information, though, the whistleblower filed his or her claim for an award.

This award is the sixth award the CFTC has made since the inception of its whistleblower award program in 2014. For every award granted, the CFTC has denied nearly ten other applications for a whistleblower bounty.

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.

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