In a March 8, 2017 ruling, the Ninth Circuit deepened a circuit split, holding that Dodd-Frank’s whistleblower protections extend to employees who raise concerns internally, and not merely to those who raise concerns to the U.S. Securities and Exchange Commission.
Almost four years after the passage of the Dodd-Frank Act, two recent developments suggest that clarifications regarding the whistleblower anti-retaliation provisions may be around the corner.
First, an upcoming case may shed light on whether a plaintiff must report alleged violations to the Securities and Exchange Commission (SEC) in order to be protected by the Dodd-Frank anti-retaliation provisions. On July 17, 2014, District Judge John M. Gerrard granted a motion to certify the question on interlocutory appeal to the Eight Circuit. Bussing v. Legent Clearing LLC et al., No: 8:12-cv-00238 (D. Neb).
The case arose after Julie Bussing, a former executive vice president for Legent Clearing LLC (now COR Clearing), alleged that she was fired after she responded to a FINRA document request by disclosing violations of the Bank Secrecy Act and anti-money laundering laws over the objection of her bosses.
In May 2014, Judge Gerrard held that the plaintiff was a “whistleblower” entitled to protection under the anti-retaliation provisions set forth in Dodd-Frank, finding that reporting the alleged violations to management within the company and to an independent regulator were sufficient to meet the whistleblower requirements, even though she had not reported the violations to the SEC. Specifically, the judge stated that Congress created the anti-retaliation section “with the aim of protecting a very broad range of disclosures, including many to persons or entities other than the SEC.” Disclosures required or protected under “any other law, rule, or regulation subject to the jurisdiction of the Commission” entitled a whistleblower to protection from retaliation. Although Bussing would be protected under the anti-retaliation provisions of Dodd-Frank, the judge held that she did not, however, meet the “whistleblower” requirements of the “bounty provision” of Dodd-Frank, which require reporting to the SEC.
While other lower courts are split on the issue, the only federal appeals court that has weighed-in, to date, is the Fifth Circuit, in Asadi v. GE Energy (USA) LLC, 720 F.3d 620 (5th Cir. 2013), holding that the retaliation protections under Dodd-Frank were only available to whistleblowers that report to the SEC. There is also a case currently pending at the Second Circuit on this issue. Liu Meng-Lin v. Siemens AG, No. 13-4385.
Second, the day following Judge Gerrard’s order, on July 18, a joint petition for rulemaking and issuance of a policy statement was submitted to the SEC by a former SEC official and the Government Accountability Project, an advocacy group supporting whistleblowers. The joint petition urges the SEC to increase and clarify the anti-retaliation protections for whistleblowers.
Specifically, the joint petition seeks clarification that whistleblowers are eligible for protection from retaliation when they make disclosures within their companies (and not to the SEC) and that private confidentiality agreements designed to prevent employees from reporting violations to the SEC or waiving their rights to receive monetary awards are illegal.
The SEC OIG recently released a report on the Dodd-Frank whistleblower program. The report, which describes in detail the internal process followed by SEC in responding to whistleblower complaints, concludes that SEC’s Office of Market Intelligence is timely reviewing all whistleblower complaints received by the Division of Enforcement, including returning all phone calls to the whistleblower hotline within 24 hours. The report concludes that SEC has implemented the final rules required by Dodd-Frank to administer the whistleblower program, and that those rules are easily comprehensible to the target audience of prospective whistleblowers — middle management personnel, controllers, finance department personnel, and others with basic securities laws, rules, and regulations knowledge. SEC’s minimum/maximum whistleblower award levels of 10-30% were determined by OIG to be consistent with other government whistleblower programs, including the FCA, and sufficient to encourage whistleblowers to come forward. Notably, the OIG concluded that adding a private right of action for whistleblowers to bring securities fraud claims on behalf of the government, such as that available to FCA relators, may have “unintended consequences,” and that it is too soon in the whistleblower program’s existence to determine whether adding a private right of action is necessary or advisable.
The SEC announced today its first payout under the whistleblower provisions of the Dodd-Frank Act. According to the SEC’s press release, the whistleblower provided documents and other significant information that allowed the SEC’s investigation to move at an accelerated pace and prevent the fraud from ensnaring additional victims, and led to a court ordering more than $1 million in sanctions, of which approximately $150,000 has been collected thus far. The award payment of $50,000 represents 30 percent of the amount collected thus far, which is the maximum percentage payout allowed by the whistleblower law. The press release notes that any increase in the sanctions ordered and collected will increase payments to the whistleblower. Neither the SEC’s press release nor the underlying orders identify the subject of the investigation or the whistleblowers.
At the same time that it approved an award to one whistleblower, the SEC rejected a claim from a second individual who sought an award in connection with the same matter because the SEC determined that the information provided did not lead to or significantly contribute to the SEC’s enforcement action.