Whistleblower Law Blog
Topic: Dodd-Frank Act
The U.S. Securities and Exchange Commission (SEC) said it filed — and promptly settled, for $2.2 milllion — its first-ever charges against a company for retaliating against a whistleblower who reported wrongdoing under the Dodd-Frank Act.
The SEC charged Paradigm Capital Management Inc., a hedge fund advisory firm, with engaging in prohibited principal transactions and then removing a head trader from his regular responsibilities after he reported the conflict of interest to the SEC.
The U.S. Commodity Futures Trading Commission (CFTC) finally made a whistleblower award under its Dodd-Frank mandate, but released virtually no information about the enforcement action that led to its $240,000 payout.
In deciding Lawson v. FMR LLC, the first whistleblower case they have heard under the Sarbanes-Oxley Act (SOX), the justices of the U.S. Supreme Court agreed that the law’s ambiguous anti-retaliation provision offered two alternatives, both somewhat unappealing:
- Either it doesn’t protect a large class of whistleblowers — in many cases, the people most likely to discover financial wrongdoing;
- Or it protects virtually anyone hired by a publicly traded company or by its employees, either directly or indirectly, and forbids reprisal for a huge range of fraud reports.
Led by Justice Ruth Bader Ginsburg, a 6-3 majority unflinchingly chose the broader interpretation, instantly giving SOX “a stunning reach,” in the words of a dumbfounded dissent by Justice Sonia Sotomayor.
For whistleblowers and their advocates, 2013 was a whipsaw year: Big advances followed sharp letdowns in quick rotation — sometimes from the same source. (Ahem, Supreme Court and White House.)
Plus there was the Snowden sideshow. But since NSA leaker Edward Snowden was never a real whistleblower — he acted outside the law and fled the consequences — his headline-grabbing revelations taught us no useful legal lessons.
Instead, the true news of 2013 was choppy-but-clear progress toward more employee-friendly readings of federal whistleblower laws. After two years of success at the administrative level, retaliation victims started getting their day in ever-higher courts. The U.S. Supreme Court put a cherry on the trend by hearing arguments in Lawson v. FMR LLC, its first whistleblowing case under the crucial Sarbanes-Oxley Act (SOX).
The U.S. Securities and Exchange Commission (SEC) announced its second whistleblower award in a month, saying it will give the maximum 30% share of penalties in an unidentified case to a tipster who helped in the enforcement action.
Coming after a huge $14 million award earlier in October, the more modest payout of more than $150,000 suggests that the SEC’s whistleblower office is systematically nailing all of its prescribed metrics: Successive announcements have emphasized payout speed (payment in August on an award made in June); payout size (the $14 million award); and, here, payout percentage.
A federal judge ruled that the Dodd-Frank Act protects whistleblowers from retaliation even if they’re punished by an employer before bringing their concerns to the Securities and Exchange Commission (SEC).
The ruling is the first explicit repudiation of July’s high-profile Asadi decision by the U.S. Court of Appeals for the Fifth Circuit, which held that Dodd-Frank starts protecting employees only after they report corporate misdeeds to the SEC.
The U.S. Securities and Exchange Commission (SEC) awarded an unnamed tipster more than $14 million, obliterating all doubt about the resolve of the agency’s whistleblower program.
The SEC didn’t identify the underlying enforcement action in either its press release or a related order, but the award’s enormous size indicates that the U.S. government may reap as much as $140 million in penalties as a result of the whistleblower’s information.
By holding the Dodd-Frank Act to a literal reading of its language — and rejecting any consideration of the statute’s goals — a federal appeals court has set up a battle over who may claim protection as a corporate “whistleblower” under the law.
“We start and end our analysis with the text of the relevant statute,” the U.S. Court of Appeals for the Fifth Circuit said in Asadi v. G.E. Energy (USA) L.L.C. — and indeed, the court parsed Dodd-Frank with the cold eye of a professional copy editor, concluding that the law protects employees against retaliation only if they have reported corporate wrongdoing to the Securities and Exchange Commission (SEC) via prescribed channels.
R. Scott Oswald, managing principal of The Employment Law Group, P.C., recently published an article in Law360 reviewing favorable developments in employment law for whistleblowers during 2012.
According to Oswald, these developments “further open the door to greater whistleblower revelations in the future, resulting in fewer laws being broken, savings for taxpayers, safer working conditions, increased awards to relators, other benefits and even lives being saved.”
Among the significant developments for whistleblowers in 2012 discussed were:
- The Department of Justice collecting nearly $5 billion in False Claims Act settlements and judgments
- The IRS and SEC Whistleblower Offices announced some of their first and largest awards
- The passage of the Whistleblower Protection Enhancement Act (WPEA) strengthened legal protections for federal employees who blow the whistle by disclosing government abuse, fraud and waste
- States continued to enact local False Claim Acts to come into compliance with the federal False Claims Act
- The Administrative Review Board (ARB) at the Department of Labor continued its whistleblower-favorable trend
- Federal courts interpreted the Dodd-Frank Act’s anti-retaliation provisions to include internal complaints, with the first Dodd-Frank claims surviving a motion to dismiss in federal court.
The article, “2012 Opens The Door For More Whistleblower Participation”, was published in the January 3, 2013 edition of Law360.
The Employment Law Group® law firm has an nationwide whistleblower protection practice representing employees who have been victims of retaliation, including a $819,000 False Claims Act whistleblower retaliation verdict on behalf of a client.
Recent Kramer Decision in Favor of a Dodd-Frank Whistleblower Likely to Strengthen Anti-Retaliation Lawsuits Brought by Financial Whistleblowers, Law360 Reports
Law360 recently indicated in its lead story the broad implications of the recent ruling in Kramer v. Trans-Lux for financial whistleblowers. The Kramer decision marked the first time a Dodd-Frank whistleblower’s retaliation claim has survived a motion to dismiss when, earlier this week, a federal judge embraced an expansive definition of whistleblower under Dodd-Frank.
The Kramer decision joins three other court decisions that have focused on the anti-retaliation provisions of Dodd-Frank as the latest in a series of decisions that broadly interpret who qualifies as a whistleblower. According to Law360’s report, many whistleblower advocates believe that the Kramer decision will result in an uptick in the filing of whistleblower claims against employers.
These developments are favorable for financial whistleblowers who face retaliation from their employers for reporting fraud or illegal conduct because by filing a retaliation claim under Dodd-Frank rather than the Sarbanes-Oxley Act, plaintiffs have a longer statute of limitations and may bring their claims directly in federal court without having first to proceed through an administrative process at the Department of Labor.
In sum, the Kramer decision will serve as additional authority for employees who seek to bring Dodd-Frank complaints after having suffered retaliation when reporting violations to their employers internally, as well as to the Securities and Exchange Commission (SEC).
The article, “Dodd-Frank Whistleblower Ruling May Spark Retaliation Suits” appeared in the September 27, 2012 edition of Law360.