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Archive for the ‘whistleblower’ Category

Dodd-Frank Court Case Could Redefine Whistleblowing

Monday, December 4th, 2017

The U.S. Supreme Court is mulling a case with major implications for would-be whistleblowers. At issue is fuzzy language in the whistleblower protections of the Dodd-Frank Act. At stake is the fate of people like Paul Somers, who was fired after he reported wrongdoing, and anyone who might blow the whistle in the future.

The decision could literally redefine who is a federal whistleblower. The wording in Dodd-Frank – under a strict interpretation – appears to protect only those who report illegal activity directly to the SEC. Had Somers done so, the law would protect him from retaliation. By reporting to his employer instead of the SEC, he may be out of luck.

Blowing the whistle or just whistling Dixie?

The case is Digital Realty Trust v. Somers. Paul Somers, an executive of a real estate investment trust, went up the chain of command with evidence of securities violations. After he was fired, Somers sued for retaliation under the whistleblower provisions of Dodd-Frank. The language in Dodd-Frank defines whistleblower as someone who “provides information relating to a violation of the securities laws” to the Securities and Exchange Commission. Does that mean workers are not protected when  employers take the slash-and-burn approach to prevent the wrongdoing from filtering up to the SEC?

Some justices felt the law is clear, or cannot be interpreted more broadly. Other justices doubted that Congress intended to punish whistleblowers who first went to their employers.

The Sarbanes-Oxley Act specifically protects employees who report wrongdoing internally, whether or not they report it to the SEC. The Court’s Dodd-Frank decision could essentially nullify the whistleblower protections of Sarbanes-Oxley. That would kick it back to a Congress that is unlikely to rewrite the law favorably for employees. The Trump administration has been friendly to whistleblowers who report government waste and fraud, but hostile to other forms of whistleblowing.

Could the Supreme Court kill whistleblowing?

If the Court sides with Digital Realty, it will undoubtedly have a chilling effect on potential whistleblowers. Even with anti-retaliation protection (and the possibility of a qui tam lawsuit), reporting fraud or abuses is a risky venture. If the Court removes the protections of Dodd-Frank, such heroes are on their own. Many will simply stay silent.

It could also be a Pyrrhic victory for companies accused of wrongdoing. If Dodd-Frank is interpreted narrowly, more whistleblowers will go straight to the SEC, allowing employers no opportunity to mitigate or do the right thing before the feds come down on them.

This blog was originally published at Passman & Kaplan, P.C., Attorneys at Law on December 1, 2017. Reprinted with permission.

About the Authors: Founded in 1990 by Edward H. Passman and Joseph V. Kaplan, Passman & Kaplan, P.C., Attorneys at Law, is focused on protecting the rights of federal employees and promoting workplace fairness.  The attorneys of Passman & Kaplan (Edward H. Passman, Joseph V. Kaplan, Adria S. Zeldin, Andrew J. Perlmutter, Johnathan P. Lloyd and Erik D. Snyder) represent federal employees before the Equal Employment Opportunity Commission (EEOC), the Merit Systems Protection Board (MSPB), the Office of Special Counsel (OSC), the Office of Personnel Management (OPM) and other federal administrative agencies, and also represent employees in U.S. District and Appeals Courts.

Sarbanes Oxley Whistleblower Protection Law at 15 Years: Know Your Rights

Thursday, August 3rd, 2017

In the wake of Enron and other corporate scandals that wiped out retirement savings and left millions unemployed, Congress enacted the Sarbanes-Oxley Act (SOX), which contains a robust whistleblower protection provision.  The whistleblower provision is intended to combat a “corporate code of silence,” which “discourage[d] employees from reporting fraudulent behavior not only to the proper authorities, such as the Federal Bureau of Investigation and the SEC, but even internally.”  Congress sought to empower whistleblowers to serve as an effective early warning system and help prevent corporate scandals.

Congressional hearings about the Enron scandal probed why such a massive fraud was not detected earlier.  The testimony and documents revealed that when employees of Enron and its accounting firm, Arthur Andersen, attempted to report corporate misconduct, they faced retaliation, including discharge.  And essentially no legal protection existed for whistleblowers, such as Sherron Watkins, who tried to stop the fraud.

Fifteen years after Congress enacted SOX, internal whistleblowers remain the best source of fraud detection.  But corporate whistleblowers continue to suffer retaliation, and, therefore, widespread fear of retaliation persists.  A survey performed by the Ethics Resource Center found that nearly half of employees observe misconduct each year, and one in five employees who reports misconduct perceives retaliation for doing so.

SOX provides robust protection to corporate whistleblowers, and indeed some SOX whistleblowers have achieved substantial recoveries.  Earlier this year, a former in-house counsel at a biotechnology company recovered $11 million in a SOX whistleblower retaliation case alleging that the company fired him for disclosing violations of the Foreign Corrupt Practices Act.

On the fifteenth anniversary of SOX, whistleblower law firm Zuckerman Law released a free guide to the SOX whistleblower protection law: “Sarbanes-Oxley Whistleblower Protection: Robust Protection for Corporate Whistleblowers.”  The guide summarizes SOX whistleblower protections and offers concrete tips for corporate whistleblowers based on lessons learned during years of litigating SOX whistleblower cases.  Workplace Fairness also has a summary of corporate whistleblowers available here.

The goal of the guide is to arm corporate whistleblowers with the knowledge to effectively combat whistleblower retaliation, avoid the pitfalls that can weaken a SOX whistleblower case, and formulate an effective strategy to obtain the maximum recovery.  In particular, the guide addresses key issues for corporate whistleblowers to consider when they experience retaliation due to their protected whistleblowing:

  • What disclosures are protected under SOX?
  • What types of retaliation are prohibited under SOX?
  • Can a whistleblower sue an individual under SOX?
  • Is a whistleblower’s motive for engaging in protected activity relevant in a whistleblower-protection case?
  • Does SOX prohibit employers from “outing” confidential whistleblowers?
  • What is a whistleblower’s burden to prove retaliation under SOX?
  • What damages can a whistleblower recover under SOX?

Lead author Zuckerman commented, “Whistleblowers put a lot on the line when they expose wrongdoing, and they deserve an effective remedy to combat retaliation.  Hopefully this guide will help whistleblowers do the right thing and keep their jobs.  And for whistleblower that have suffered retaliation, the guide can help them explore options to hold their employers accountable.”

About the Author: Jason Zuckerman, Principal of Zuckerman Law, litigates whistleblower retaliation, qui tam, wrongful discharge, discrimination, non-compete, and other employment-related claims. He is rated 10 out of 10 by Avvo, was recognized by Washingtonian magazine as a “Top Whistleblower Lawyer” in 2007 and 2009 and selected by his peers to be included in The Best Lawyers in America® and in SuperLawyers.

News from Congress: VA Employees' Civil Service Protections Slashed

Wednesday, July 12th, 2017

On June 23, 2017, the President signed into law Pub.L. 115-41.  The new statute reduces civil service protections for employees of the Department of Veterans Affairs (DVA).

Pub.L. 115-41 renews the push to cut back VA civil service protections, after the prior attempt under the last Administration saw adverse actions reversed at the Merit Systems Protection Board (MSPB) and portions of the statute struck down as unconstitutional.

Pub.L. 115-41 is more expansive than the prior statute.  Instead of just applying to Senior Executive Service (SES) employees at DVA, the statute applies to all DVA civil service employees, but different rules apply to different categories of employees.

SES employees and certain other individuals in executive or administrative positions can be removed, suspended, reprimanded, involuntarily reassigned or demoted by the Secretary, with notice and opportunity to respond to the proposal limited to 7 business days and the overall period from proposal to decision limited to 15 business days.  Affected DVA employees lose MSPB appeal rights.  Instead, adverse actions taken under this mechanism may solely be grieved to a new DVA internal grievance process, with a final decision due within 21 days.  Final decisions by DVA are then subject to judicial review.

Other DVA employees also suffer cuts to their civil service protections.  Under Pub.L. 115-41, affected employees may receive proposed adverse actions from the Secretary, with notice and opportunity to respond to the proposal limited to 7 business days and the overall period from proposal to decision limited to 15 business days.  MSPB appeal rights are retained, but the appeal deadline is cut to 10 business days.  The MSPB administrative judge must issue a final decision within 180 days.  The VA’s burden of proof to support its charges is cut to mere substantial evidence.  The MSPB may not mitigate to a lesser penalty (it must uphold the penalty or reverse entirely).

Pub.L. 115-41 moves into statute the DVA whistleblower office created by Executive Order 13,793.  The Secretary cannot remove, demote or suspend non-executive whistleblowers with active cases before the Office of Special Counsel (OSC) or the DVA whistleblower office without permission of the relevant whistleblower office.

Pub.L. 115-41 also allows the Secretary to disallow retirement service credit for DVA employees who are convicted of felonies.  Pub.L. 115-41 also allows the Secretary to claw back bonuses, awards and relocation expenses paid to DVA employees under certain circumstances.

This blog was originally published by The Attorneys of Passman & Kaplan, PC on July 7, 2017. Reprinted with permission.

About the Authors: Founded in 1990 by Edward H. Passman and Joseph V. Kaplan, Passman & Kaplan, P.C., Attorneys at Law, is focused on protecting the rights of federal employees and promoting workplace fairness.  The attorneys of Passman & Kaplan (Edward H. Passman, Joseph V. Kaplan, Adria S. Zeldin, Andrew J. Perlmutter, Johnathan P. Lloyd and Erik D. Snyder) represent federal employees before the Equal Employment Opportunity Commission (EEOC), the Merit Systems Protection Board (MSPB), the Office of Special Counsel (OSC), the Office of Personnel Management (OPM) and other federal administrative agencies, and also represent employees in U.S. District and Appeals Courts.

The SEC Whistleblower Program

Monday, July 10th, 2017

In 2011, a former executive at Monsanto, a large publicly traded company, raised concerns that the company was violating accounting rules and misstating its earnings. Despite being aware of these issues, Monsanto failed to remedy the accounting violations and continued to misstate earnings. Undeterred, the former executive reported his concerns to the U.S. Securities and Exchange Commission (SEC) through its new whistleblower program. Armed with this information, the SEC opened an investigation into Monsanto’s accounting practices and discovered that the company had indeed violated accounting rules and misstated company earnings for three years. Monsanto agreed to pay an $80 million penalty to settle the charges and the former executive received a $22 million award from the SEC.

Overview of the SEC Whistleblower Program  

The SEC Whistleblower Program was established to incentive whistleblowers, like the former Monsanto executive, to report violations of the federal securities laws to the SEC. Under the program, whistleblowers may be eligible for an award when they provide the SEC with original information that leads to successful enforcement actions with monetary sanctions totaling more than $1 million. A whistleblower may receive an award of between 10-30 percent of the monetary sanctions collected.

The SEC requests specific, timely, and credible information about any violation of the federal securities laws. The most common whistleblower tips relate to corporate disclosures and financials, offering fraud and market manipulation. Other notable areas of whistleblower tips relate to insider trading, trading and pricing schemes, foreign bribery, unregistered offerings, and EB-5 investment fraud.

Under the program, whistleblowers may submit tips anonymously to the SEC if represented by an attorney. Moreover, most whistleblowers, regardless of citizenship or position within a company, are eligible (or can become eligible) for an award under the program. This includes internal auditors, external auditors, officers, directors, and even individuals involved in the wrongdoing.

Since 2011, the SEC Whistleblower Program has received over 18,000 tips and has awarded more than $150 million to whistleblowers. Enforcement actions resulting from whistleblower tips have enabled the SEC to recover nearly $1 billion in financial remedies from wrongdoers, much of which has been returned to investors.

Free eBook on the SEC Whistleblower Program

The rules implementing the SEC Whistleblower Program are complex and there are many potential pitfalls for whistleblowers. Zuckerman Law has recently released a free eBook about the program that highlights important steps that whistleblowers should take to increase the likelihood of recovering and maximizing an SEC whistleblower award. The eBook covers the following topics:

Overview of the SEC Whistleblower Program

  • What is the SEC Whistleblower Program?
  • Can I submit an anonymous tip to the SEC Whistleblower Office?
  • What employment protections are available for SEC whistleblowers?
  • What violations qualify for an SEC whistleblower award?
  • What are the largest SEC whistleblower awards?

Whistleblowers Eligible for an Award

  • Who is an eligible SEC whistleblower?
  • Can I submit a claim if I had involvement in the fraud or misconduct?
  • Can I submit a tip if I agreed to a confidentiality provision in an employment/severance agreement?
  • Can compliance personnel, auditors, officers or directors qualify for an SEC whistleblower award?

Reporting to the SEC and Maximizing Award Percentage

  • When is the best time to report the fraud or misconduct to the SEC?
  • Do I have to report the violation to my company before reporting the violation to the SEC?
  • Can I submit an SEC Whistleblower claim if the SEC already has an open investigation into the matter?
  • How do I submit a tip to the SEC?
  • What type of evidence should I provide to the SEC?
  • What factors does the SEC consider when determining the amount of the award?

After Reporting to the SEC

  • What happens after I submit a tip to the SEC?
  • How long does it take to receive an SEC whistleblower award?

Click here to download your free copy of the eBook SEC Whistleblower Program: Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award.

About the Author: Jason Zuckerman represents whistleblowers nationwide in whistleblower rewards and whistleblower retaliation claims.  Recently Matt Stock and Zuckerman issued an ebook titled SEC Whistleblower Program: Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award.

Comey’s Testimony Underscores Need for Strong Whistleblower Protections

Wednesday, June 14th, 2017

For me, the most telling moment of former FBI Director Jim Comey’s June 8th testimony occurred early in the hearing, when Mr. Comey choked up as he recalled the White House’s publicly stating that the President had fired him because the “FBI was in disarray.”

This emotional display seemed out of character for Mr. Comey. While U.S. Attorney for the Southern District of New York, he successfully prosecuted organized crime. As Deputy Attorney General during the George W. Bush Administration, Mr. Comey refused to sign an extension of the warrantless domestic spying program and defied the White House Counsel and Chief of Staff. Mr. Comey can fairly be described as a “tough guy.” So how did he go from leading the most powerful law-enforcement agency worldwide to being labeled a “leaking liar”?

To an experienced whistleblower advocate, Mr. Comey’s predicament is not surprising. Mr. Comey’s experience, unfortunately, is like those of many whistleblowers I have represented over more than a decade. President Trump promised to bring a business approach to government–and his retaliation against Mr. Comey is straight out of the corporate defense playbook. Corporations typically take the following steps of escalating retaliation to silence whistleblowers:

Intimidate and Silence the Whistleblower

In his June 8th testimony, Mr. Comey described in detail how the President had asked him to drop the investigation of Michael Flynn and had conditioned Mr. Comey’s job on “loyalty” to him. Senator Rubio expressed skepticism about Mr. Comey’s feeling intimidated by the President and blamed Mr. Comey for not pushing back. But that type of Monday-morning quarterbacking ignored the power dynamics of the conversation. Mr. Comey wanted to keep his job and was understandably reluctant to accuse the President of obstructing an investigation.

Whistleblowers often confront this intimidation tactic in the workplace. A supervisor or senior company official tells the whistleblower to “let it go,” “mind your own business,” or learn to be a “team player.” And in some cases, the whistleblower is told to shut up if he or she wants to remain employed. Threats of retaliation, whether express or implicit, are powerful tools to silence a whistleblower. When a company officer or senior manager orders a subordinate to do something unlawful or to cover up unlawful conduct, holding firm to one’s ethical values is not an easy avenue to follow. As Mr. Comey learned, refusing to carry out an unlawful order may be career suicide, at least in the short term.

Retaliate Swiftly and Severely Against the Whistleblower

Initially, the bizarre method of firing Mr. Comey seemed surprising for a President who perfected the art of firing on his reality show, The Apprentice. Mr. Comey was not given an opportunity to resign; he was not even notified that he had been fired. But now that we know about the President’s real motive for firing Mr. Comey, it’s clear that his tack was deliberate.

Mr. Comey learned of his firing while addressing FBI agents at a Los Angeles field office when the announcement flashed across a television screen. The White House had announced Mr. Comey’s firing without notifying Mr. Comey himself. President Trump sent a loud and clear message to Mr. Comey and to every senior government official about the consequence of disloyalty.

In the corporate workplace, whistleblower-employees are similarly humiliated as a warning to their colleagues. A whistleblower may be escorted out of the office with security guards while other employees are present, pulled out of a meeting and fired on the spot in front of colleagues, or simply fired via text message. When a corporation fires a whistleblower in this humiliating fashion, it ensures that all other employees know the consequence of whistleblowing.

Badmouth the Whistleblower and Their Work History

Firing Mr. Comey in a humiliating and offensive manner served only as phase one. President Trump then defamed Mr. Comey and asserted that he fired him because of chaos within the FBI, as well as the alleged loss of confidence in Mr. Comey among FBI agents.

These statements stand in stark contrast to the President’s repeated, public praise of Mr. Comey before Mr. Comey refused to comply with the President’s “hope” that Mr. Comey drop the investigation of Flynn. Indeed, if President Trump believed that Mr. Comey’s leadership caused chaos within the FBI, then why did the President invite Mr. Comey to continue to serve as FBI Director?

This patent distortion of Mr. Comey’s performance record is an all-too-common experience of whistleblowers. Prior to blowing the whistle, they receive strong performance evaluations and bonuses; they are valued members of the team. But once they blow the whistle and refuse to drop their concerns, they are suddenly deemed incompetent and unqualified for their position. And when a company realizes that it lacks any existing basis to fire the whistleblower, it creates one by subjecting the whistleblower to heightened scrutiny and setting the whistleblower up to fail. For example, a company might place the whistleblower on a performance-improvement plan that contains impossible objectives, and then fire the whistleblower for not meeting those unattainable goals.

This tactic may backfire and enable a whistleblower to ultimately prevail at trial, but the damage to the whistleblower’s reputation is permanent. Prospective employers are reluctant to hire someone who previously fired for poor performance and are especially reluctant to hire a whistleblower. Many whistleblowers never find comparable employment and must accept lower-level positions, earning a fraction of what they did before their wrongful termination.

Attack the Whistleblower’s Credibility

Apparently, President Trump has no evidence to rebut Mr. Comey’s vivid account of the President’s alleged attempts to obstruct justice. So President Trump called him a “liar.”

Desperate to defend themselves at all costs, corporations frequently employ this tactic–labeling the whistleblower a disgruntled former employee who will say anything to win his or her case. So far, this is not working well for President Trump, whose accusation merely serves to shine a spotlight on his own questionable credibility.

Attacking a whistleblower’s credibility is an effective and pernicious tactic in many whistleblower cases. Once expelled from a company, a whistleblower is marginalized and alienated from former coworkers. The key witnesses continue to work at the company and, fearing retaliation, are reluctant to corroborate the whistleblower’s testimony. Though whistleblowers may still prevail (for example, by using documentary evidence), the attack on a whistleblower’s credibility is odious because the company fired the whistleblower precisely for having integrity.

Create a Post-Hoc Justification for Firing the Whistleblower

Prior to firing Mr. Comey, President Trump papered the file with a post-hoc justification for the firing. After the President decided to fire Mr. Comey, Deputy Attorney General Rod Rosenstein was tasked with drafting a memorandum to the Attorney General outlining concerns about Mr. Comey’s performance. Most of those concerns focus on Mr. Comey’s statements about the investigation of former Secretary of State Hillary Clinton’s use of a private email server. Surely President Trump knew of those public statements when he repeatedly asked Mr. Comey to remain as FBI Director (as long as he could pledge “loyalty” and drop the Flynn investigation).

In this case, the White House’s initial reliance on the Rosenstein memo as the basis for the decision to fire Mr. Comey backfired because President Trump told NBC anchor Lester Holt that he had decided to fire Mr. Comey regardless of the memo. In many whistleblower-retaliation cases, however, these types of pretextual memos may be persuasive. Some judges even rely on such memos, which mask the real reason for a firing or other adverse action, to grant the company summary judgment and deny the whistleblower a jury trial.

On the other hand, creating a post-hoc justification for a retaliatory adverse action sometimes misfires by providing strong evidence of pretext and spurring a jury to award punitive damages. For instance, a former in-house counsel at Bio-Rad Laboratories recently secured more than $11 million in damages at trial in a Sarbanes-Oxley whistleblower-retaliation case. The jury awarded $5 million in punitive damages because Bio-Rad had backdated a negative performance evaluation of the whistleblower that the company drafted after it fired him.

Focus on the Whistleblower’s Alleged Misconduct

To distract attention from what may be obstruction of justice, President Trump and his attorney have focused on Mr. Comey’s leak to the press and have alleged that the leak was unlawful. This accusation seems frivolous because Mr. Comey did not leak classified information, grand jury material, or other sensitive information. Instead, he revealed that President Trump had conditioned his continued service as FBI Director on his agreeing to drop the investigation of Flynn. As a private citizen, Mr. Comey has a constitutional right to blow the whistle to the media about this matter of public concern. Mr. Comey did not reveal to the media information from FBI investigative files or classified information. Yet President Trump and his allies compare Mr. Comey to leakers who illegally disclosed classified information. This is an appalling accusation against the former head of a law-enforcement agency.

But this is another standard corporate defense tactic in whistleblower cases. To divert attention from the wrongdoing that the whistleblower exposed, the company uses its substantial resources to dig up dirt on the whistleblower. The company or its outside counsel examines the whistleblower’s timesheets and expense reports with a fine-tooth comb to find any discrepancy, reviews every email to find some inappropriate communication, and places all of the whistleblower’s work under a microscope to find any shortcoming.

Sue the Whistleblower and Initiate a Retaliatory Investigation

Firing Comey, concocting a pretextual basis for the firing, and branding him a leaking liar apparently was not sufficient retaliation.  So shortly after his testimony, President Trump’s personal attorney announced his intention to sue Mr. Comey and/or file a complaint with the Department of Justice Office of Inspector General (OIG).  I am skeptical that a civil action against Mr. Comey or an OIG complaint poses any real legal threat to Mr. Comey.  To the contrary, such a complaint would likely pose a greater risk for President Trump, including potential counterclaims and the risk of being deposed or questioned under oath by the OIG.

The misuse of legal process against corporate whistleblowers, however, is an especially powerful form of retaliation in that it can dissuade a whistleblower from pursuing their claims.  When I defend against this form of abuse of process, I am always struck at the seemingly endless resources that the company will spend to prosecute claims lacking any merit or value.  Fortunately, these claims can go awry by spawning additional retaliation claims under the whistleblower protection laws.  And a jury can punish the employer for subjecting the whistleblower to abuse of process.

Why Whistleblowers Deserve Strong Legal Protection

In light of Mr. Comey’s distinguished record, he will likely bounce back and rebuild his career. But most corporate whistleblowers never fully recover. Too often they find their careers and reputations destroyed. Even when whistleblowers obtain monetary relief at trial, they are usually blacklisted from comparable positions, especially if they work in a small industry.

Mr. Comey’s experience as a whistleblower is a stark reminder of what can happen to any employee who is pressured by a powerful superior to engage in unlawful conduct or to cover up wrongdoing. When intimidation tactics succeed, the public suffers. The company could be covering up threats to public health or safety, environmental contamination, financial fraud, defective products, or any other conceivable harmful wrongdoing.

Courageous whistleblowers who put their jobs on the line deserve strong protection. As Congress embarks on a mission to gut “job killing” agencies, let us hope it will spare the very limited resources that are spent enforcing whistleblower-protection laws. Without such a large backlog of whistleblower cases, OSHA could have, for example, addressed the complaints of Wells Fargo whistleblowers years ago, potentially curbing or halting the bank’s defrauding of its customers. And Congress should consider filling the gaps in existing whistleblower laws. If Mr. Comey “lacked the presence of mind” to explicitly reject the President’s improper demand for him to drop the Flynn investigation, then surely most employees would also be reluctant to refuse an order to commit an unethical or unlawful act.

After Mr. Comey’s testimony, Speaker Ryan pointed out that “[t]he President’s new at this. He’s new to government.” Mr. Comey’s testimony should be a lesson for the President about how to treat whistleblowers. To make America great again, the President should abandon the Rambo litigation tactics that apparently served him well in New York real-estate disputes, and instead view whistleblowers as allies, not as enemies. As Tom Devine of the Government Accountability Project and I argue in an article in the Emory Corporate Governance and Accountability ReviewDraining the Swamp Requires Robust Whistleblower Protections and Incentives.

This article originally appeared at the Whistleblower Protection Law Blog on June 13, 2017, it is reprinted here with permission.

Jason Zuckerman represents whistleblowers nationwide in whistleblower rewards and whistleblower retaliation claims.  Recently Matt Stock and Zuckerman issued an ebook titled SEC Whistleblower Program: Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award.

SEC Orders Company to Pay $500K For Whistleblower Retaliation

Friday, October 7th, 2016

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This past week, the SEC brought its first enforcement action ever to be based solely on retaliation against a whistleblower.  On September 29, 2016, the SEC ordered International Game Technology (IGT) to pay a $500,000 penalty for terminating the employment of a whistleblower because he reported to senior management and the SEC that the company’s financial statements might be distorted.  Though this is the second time the SEC has exercised its authority under the Dodd-Frank Act to redress whistleblower retaliation, it is the SEC’s first stand-alone retaliation case.  The enforcement action underscores the high value the agency places on whistleblowers and indicates that the SEC Office of the Whistleblower will remain an aggressive advocate for whistleblowers under its new director, Jane Norberg.

Background

The whistleblower joined IGT in 2008.  When IGT terminated his employment on October 30, 2014, the whistleblower was a division director with a budget of more than $700 million and supervisory responsibility for up to eleven direct reports.  Throughout his tenure at IGT, he received exceptional ratings and was described as the VP’s Supervisor’s top employee, as a “high potential” employee, and as an employee with a potential “future assignment” at the vice-president level.  In addition, IGT even sought authorization from senior resources managers to pay him a special retention bonus.

Starting in June 2014, the whistleblower led several projects to determine whether it was cheaper for IGT to refurbish used parts using outside vendors or through internal refurbishment.  During the project, the whistleblower became concerned that IGT was improperly accounting for costs associated with refurbished used parts.  Although the whistleblower was not an accountant in the company, he reasonably believed that the company’s current method resulted in a $10 million discrepancy in the financial statements.

On July 30, 2014, the whistleblower reported his findings to his supervisors during a presentation.  After raising concerns about the accounting method and its impact on the financial statements, the whistleblower had a heated disagreement with the executive supervisor on the issue.  Immediately following the meeting, the executive supervisor emailed the whistleblower’s supervisor regarding the presentations, stating that, “I can’t allow [the whistleblower] to place those inflammatory statements into presentations, if there is not basis in fact.”

Thereafter, IGT conducted an internal investigation into the allegations made by the whistleblower.  During the investigation, IGT retaliated against the whistleblower by removing him from job opportunities that were significant to performing his job successfully.  On October 31, 2016, the internal investigation concluded that IGT’s cost accounting model was appropriate and did not cause its financial statements to be distorted.  That same day, IGT terminated the whistleblower.

SOX’s Reasonable Belief Standard Provides Broad Protection

Although the whistleblower’s concern was ultimately incorrect, he was still protected under the SEC Whistleblower Program because he reasonably believed that IGT’s cost accounting model constituted a violation of federal securities laws.  Recently, the trend in federal courts has been to broadly construe protected activity under this reasonable belief standard.  This is a departure from the previous requirement that whistleblowers “definitively and specifically” identify the alleged violation at issue, which undermined potential whistleblowing.

The courts’ broad interpretation of the reasonable belief standard is important because whistleblowers’ must be free to make good faith disclosures, even if they end up being wrong.  As Andrew J. Ceresney, director of the SEC’s Division of Enforcement, said, “[s]trong enforcement of the anti-retaliation protections is critical to the success of the SEC’s whistleblower program.  This [IGT] whistleblower noticed something that he felt might lead to inaccurate financial reporting and law violations, and he was wrongfully targeted for doing the right thing and reporting it.”

Similarly, Jane A. Norberg, Chief of the SEC’s Office of the Whistleblower, stated that “[b]ringing retaliation cases, including this first stand-alone retaliation case, illustrates the high priority we place on ensuring a safe environment for whistleblowers.  We will continue to exercise our anti-retaliation authority when companies take reprisals for whistleblowing efforts.”

Prior SEC Enforcement Action for Whistleblower Retaliation

The IGT enforcement action is consistent with an SEC enforcement action against hedge fund advisory firm Paradigm Capital Management (“Paradigm”), which also redressed whistleblower retaliation.  On June 16, 2014, the SEC announced that it was taking enforcement action against Paradigm for engaging in prohibited principal transactions and for retaliating against the whistleblower who disclosed the unlawful trading activity to the SEC.

According to the order, Paradigm retaliated against its head trader for disclosing, internally and to the SEC, prohibited principal transactions with an affiliated broker-dealer while trading on behalf of a hedge fund client. The transactions were a tax-avoidance strategy under which realized losses were used to offset the hedge fund’s realized gains.

When Paradigm learned that the head trader had disclosed the unlawful principal transactions to the SEC, it retaliated against him by removing him from his position as head trader, changing his job duties, placing him on administrative leave, and permitting him to return from administrative leave only in a compliance capacity, not as head trader. The whistleblower ultimately resigned his position.

Paradigm settled the SEC charges by consenting to the entry of an order finding that it violated the anti-retaliation provision of Dodd-Frank and committed other securities law violations, agreeing to pay more than $1 million to shareholders and to hire a compliance consultant to overhaul their internal procedures, and entering into a cease-and-desist order.

The SEC’s press release accompanying the order includes the following statement by Enforcement Director Ceresney: “Those who might consider punishing whistleblowers should realize that such retaliation, in any form, is unacceptable.” The Paradigm enforcement action suggests that whistleblower retaliation can result in liability far beyond the damages that a whistleblower can obtain in a retaliation action and that retaliation can invite or heighten SEC scrutiny.

These enforcement actions signal to companies that retaliating against a whistleblower can result not only in a private suit brought by the whistleblower, but also in a unilateral SEC enforcement action.  The IGT action in particular indicates that employers cannot take adverse actions against whistleblowers, even when the underlying disclosure is in error.

For more information about whistleblower protections and whistleblower rewards, call the whistleblower lawyers at Zuckerman Law at 202-262-8959.

This blog originally appeared at ZuckermanLaw.com on October 4, 2016. Reprinted with permission.

Jason Zuckerman, Principal of Zuckerman Law, litigates whistleblower retaliation, qui tam, wrongful discharge, discrimination, non-compete, and other employment-related claims. He is rated 10 out of 10 by Avvo, was recognized by Washingtonian magazine as a “Top Whistleblower Lawyer” in 2007 and 2009 and selected by his peers to be included in The Best Lawyers in America® and in SuperLawyers.

We Need a National Whistleblower Appreciation Day

Wednesday, July 29th, 2015

sydney robinsonOn July 30th, employee advocates across the country will be urging their members of Congress to declare July 30th National Whistleblower Appreciation Day. July 30th is an apt choice for such a day, as it was on that day in 1778 that the Continental Congress passed the first ever law protecting brave employees who wanted to keep our country free of fraud and crime. But America has a long way to go before those who blow the whistle are always lauded or considered heroes.

Fewer labels create such extreme, polarizing views than that of “Whistleblower.” For that reason, there can be a stigma attached to the act that prevents honest employees from coming forward when they see wrongdoing, knowing that they are risking their jobs, their freedom, and in some cases their personal safety to do so.

When it comes to whistleblowing in the area of National Security, the issue can be extremely divisive. Signed in October 2012, Presidential Policy Directive 19 (PPD-19) was President Obama’s attempt to address the issue in the wake of such newsmakers as Edward Snowden. When considering matters of intelligence or national security, U.S. courts have a tendency to cede to the other branches’ right to keep secrets. While it doesn’t take a foreign policy genius to realize that at least some secrecy is necessary to maintain the safety and security of the US and our nation’s interests abroad, June’s hearings on federal employee whistleblowers only highlighted the need for additional protections for those employees interested in protecting the interests of the American people by shining a light on wrongdoing.

In some circumstances, federal employees may be subject to protection from retaliation under the Whistleblower Protection Act. But the act doesn’t cover every wrong that may be reported. It is also limited by who may make a report and to whom the report may be made. If not reported in compliance with whistleblower laws, whistleblowers can lose their jobs for reporting government waste and fraud without any recourse.

Last month, the NSA announced plans to disband certain surveillance programs. This might never have happened without Senator Wyden’s infamous question to Director Clapper after Edward Snowden’s controversial disclosures. Needless to say, it can be difficult for a member of either Intelligence Committee to bring to the public eye any issue discovered. The Senate hearings on the brave employees who brought real issues to the public’s attention have shown that the American people’s interests are not always being protected by the government’s actions. The price of national security should not be the rights of employees.

Employees in the private sector face an even greater likelihood of retaliation for trying to do the right thing. Few laws exist to protect private sector whistleblowers. (See filing a discrimination claim http://www.workplacefairness.org/whistleblower-claim for newly-updated information on state laws which protect whistleblowers.) This is not the way our country should be run. In fact, protecting employees who step up with real concerns can save Americans time, money, and more in the long run.

Workplace Fairness supports the work of the National Whistleblower Center toward establishing a National Whistleblower Appreciation Day and has recently updated the following pages: Corporate Whistleblowers, Federal Whistleblowers, and Filing a Whistleblower or Retaliation Claim, to provide whistleblowers with the latest legal information about their rights. You can help by inviting your member of Congress to support whistleblowers here. If you would like to learn more about National Whistleblower Appreciation Day, please visit the National Whistleblower Day website.

By creating a National Whistleblower Appreciation Day, America can take a step forward by acknowledging whistleblowers as positive contributors to society, rather than pariahs who risk losing their careers and even their lives without adequate legal recourse.

About the Author: The author’s name is Sydney Robinson. Sydney Robinson is an intern for Workplace Fairness. She is a law student at The George Washington University Law School.

OSHA Secures Robust Injunctive Relief for Whistleblower

Monday, May 18th, 2015

jason zuckermanOn May 7, 2015, OSHA obtained a preliminary injunction in a Section 11(c) whistleblower case barring Lear Corporation from further retaliating against the whistleblower, Kimberly King. The injunction is a significant win for whistleblowers because the court’s order broadly construes the scope of protected whistleblowing to include disclosures to the media, and it signals OSHA’s stepped up enforcement of whistleblower protection laws.

Kimberly King worked for Lear Corporation at a plant in Alabama that produces foam cushions that are used in car seats and headrests. King raised concerns about the health effects of exposure to a chemical called toluene diisocyanate (“TDI”).   Based on internal tests and tests conducted by OSHA, Lear concluded that TDI levels were within legal limits. King, however, remained concerned that she developed asthma because of her exposure to elevated TDI levels at the plant, and King shared her concerns with media outlets. An article on nbcnews.com described how TDI and other workplace chemicals correlate with certain respiratory conditions like asthma, and the article cited a physician who concluded that King is in the top 25 percent in terms of the levels of isocyanate antibodies in her blood.  King also participated in a YouTube video accusing Lear of exposing employees to TDI.

Lear suspended King and another employee from work without pay for participating in the video on the ground that King should have known that the plant was not exposing employees to elevated levels of TDI.   In addition, Lear demanded that King recant her statements to the media. King continued to raise her concerns by going to Hyundai in March 2015 to deliver a letter asking it to fix the conditions at the plant. Lear then suspended King for seven days without pay, and upon King’s return, Lear terminated her employment and sued her for defamation and interference with business relations.

After an evidentiary hearing, Judge Callie V.S. Granade concluded that King’s participation in the YouTube video, her disclosures to the press, and her disclosures to OSHA constitute protected activity. In addition, she issued an order providing broad preliminary relief, including:

  • enjoining Defendants from terminating, suspending, harassing, suing, threatening, intimidating, or taking any other discriminatory or retaliatory action against any current or former employee based on Defendants’ belief that such employee exercised any rights he or she may have under the Occupational Safety and Health Act;
  • enjoining Defendants from telling any current or former employee not to speak to or cooperate with representatives of the Secretary of Labor;
  • enjoining Defendants from obstructing any investigation by the Secretary of Labor or its designee; and
  • enjoining Defendants from suing current or former employees because those individuals complained about health and safety or because they engaged in protected activity under the Occupational Safety and Health Act.

In assessing whether OSHA’s injunction serves the public interest (one of prerequisites for granting a preliminary injunction), Judge Granade made a critical observation about the public policy undergirding whistleblower protection laws: “The public retains an interest in safe and healthy workplace environments for all employees, and protecting employees who speak up about perceived dangers in the workplace. This preliminary injunction may also help prevent future violations of section 11(c) and inform current employees of their rights under this section.” This order is a great example of the type of vigorous enforcement required to effectively protect whistleblowers.

About the author: The author’s name is Jason Zuckerman. Jason Zuckerman is Principal at Zuckerman Law (www.zuckermanlaw.com)  and represents whistleblowers nationwide.  He is the author of the Whistleblower Protection Law Blog (www.whistleblower-protection-law.com).

 

Tragic Environmental Disaster in West Virginia Should Spur TSCA Reform, Including Stronger Whistleblower Protections

Sunday, January 19th, 2014

jason zuckermanThree hundred thousand residents of Charleston, West Virginia are unable to use tap water because a chemical storage facility spilled 7,500 gallons of 4-methylcyclohexane methanol (MSHM), a chemical used to “clean” coal, into the Elk River.  This tragic incident highlights the need to update the Toxic Substances Control Act (TSCA), including the TSCA’s whistleblower protection provisions.

Incredibly, the EPA and the company that contaminated Charleston’s water supply have very limited data on the health risks posed by MCHM.   And the site of the chemical spill has not been inspected since 1991.   According to theEnvironmental Defense Fund, TSCA has fundamentally failed to protect the public against harmful chemicals.  Due to a nearly impossible burden on the EPA to prove actual harm in order to control a dangerous chemical, the EPA has required testing of approximately 200 of 30,000 chemicals and has succeeded in mandating restrictions on the production or use of only five substances.  In addition, TSCA enables chemical companies to conceal safety and health data from the public  by designating all submissions to the EPA as confidential business information.

Hopefully, the chemical spill in Charleston will spur Congress to act on pending legislation that would strengthen chemical testing and regulation.  But the proposed TSCA reform legislation is missing a critical element – a much-needed update of TSCA’s weak whistleblower protection provision.

TSCA’s whistleblower protection provision ostensibly protects whistleblowers from retaliation for reporting violations relating to violations of TSCA or for assisting or participating in a proceeding to carry out the purposes of TSCA .  But the statute of limitations is just 30 days and the burden of proof for the whistleblower is higher than the burden of proof imposed on whistleblowers in most analogous whistleblower protections laws administered by the Department of Labor.

In reforming TSCA, Congress should update TSCA’s whistleblower protection provision to include the following features that have become standard in most of the whistleblower protection laws that Congress has enacted in the past decade:

  • The causation standard should be contributing factor, i.e., the whistleblower prevails by proving that protected activity was a contributing factor in the unfavorable action. A contributing factor is any factor which, alone or in connection with other factors, tends to affect in any way the outcome of the decision.
  • Once the whistleblower proves that protected conduct was a contributing factor in the adverse action, the employer can avoid liability only if it proves by clear and convincing evidence that it would have taken the same action in the absence of the employee’s protected conduct.
  • Extend the statute of limitations to at least 180 days.
  • Authorize preliminary reinstatement, i.e., the employer would be required to reinstate the whistleblower at the conclusion of an OSHA investigation finding that the employer violated the TSCA whistleblower protection provision.
  • Offer whistleblowers the option to remove their claims from the Department of Labor to federal court to try their claims before a jury.
  • Eliminate the “duty speech” loophole to ensure that employees who blow the whistle in the ordinary course of their job duties are protected.

When an independent investigation was performed of the explosion at the Upper Big Branch Mine in West Virginia that killed 29 workers, the investigators found that a culture of fear and intimidation contributed to the explosion.  Miners were discouraged from reporting safety violations and miners who disclosed safety issues were fired or ostracized.   In order for TSCA reform to be effective, whistleblowers in the chemical industry must be protected against retaliation.

This article was originally printed on Whistleblower Protection Law Blog on January 15, 2014.  Reprinted with permission.

About the Author: Jason Zuckerman is Principal at Zuckerman Law (www.zuckermanlaw.com)  and represents whistleblowers nationwide.  He is the author of the Whistleblower Protection Law Blog (www.whistleblower-protection-law.com).

The Legal Implications of Online Whistleblowing

Wednesday, July 10th, 2013

davidyamadaIn Monday’s news, the Golden Corral discount buffet chain got some unwanted national publicity when the YouTube video above, showing how raw meat and other foodstuffs to be served to customers was stored outside near a dumpster at one of its Florida restaurants, went viral. The video was taken supposedly during a health inspection(!) and posted by one of its own chefs. (For details about this incident and similar instances involving the retail food industry, see Olivia Waxman’s article for Timehere.)

Online whistleblowing

The posting of the video to YouTube was a classic example of online whistleblowing.

Websites, blogs, and social media in general have given rise to workers sharing stories of illegal and unethical behavior online, sometimes in lieu of pursuing internal reporting and legal complaint options that they believe will be ineffective. With the ready availability of public forums such as YouTube and Facebook and work-specific sites such eBossWatch and Glassdoor, workers can take their concerns directly to a broader audience.

Some forms of online whistleblowing involve self-identification; others are anonymous. Some mention specific employers and bosses; others do not.

Legal implications

Such online expression should be undertaken with caution, because questions of whether or not it is protected under the law are far from settled.

The Golden Corral chef who posted the video apparently has not lost his job. If he’s fired, it’s possible he’ll have a legal claim under some food safety law, or perhaps a state-based claim for wrongful termination on grounds that his termination violated public policy.

Nevertheless, we need to start with the fact that most U.S. workers are hired at will, which means that they can be fired for any reason or no reason at all. Finding an exception to this broad rule would be the main challenge facing any lawyer representing  a client who was fired for online whistleblowing.

Don’t count on claiming First Amendment protections. Private sector workers are not covered by the First Amendment’s free-speech protections, with one exception (Connecticut); public sector workers are covered only in limited instances when the expression relates to a public concern.

Various whistleblower laws and anti-retaliation provisions are most applicable when someone has filed a formal complaint or at least reported illegal or unethical behavior internally. These protections, on the whole, are less to cover reports posted to various Internet sites.

During the past two years, media coverage of National Labor Relations Board decisions concerning social media has led some people to believe (erroneously) that they have a more or less absolute right to criticize their boss on Facebook. It would take a legal memo for me to explain all the reasons why this is not true. Some workers, mostly union members and non-management employees acting as a group, would be covered. Most other employees would not.

It is worth adding that not all unethical behavior raises a direct legal issue. Also, a wrongful accusation of illegal or unethical behavior posted publicly could lead to a defamation claim, especially if it receives widespread attention.

For more

For those interested in learning about the legal and public policy implications of online whistleblowing concerning employment conditions, Professor Miriam Cherry of St. Louis University School of Law has authored a 2012 law review article, “Virtual Whistleblowing” (link to pdf). Here’s the abstract posted to her Social Science Research Network page:

“With the advent of YouTube, blogs, social networking, and whistleblower websites such as WikiLeaks, the paradigm of whistleblowing is changing. The new paradigm for “virtual whistleblowing” is increasingly online, networked, and anonymous. While whistleblowing can take place in many contexts, this symposium article concentrates on the impact of technological changes on employment law whistleblowing. My contention for some time has been that existing regulation has been inadequate to cover existing forms of whistleblowing. Therefore, it is not surprising that existing whistleblowing laws have also failed to keep pace with the changes brought by modern technology. If older laws cannot be made to fit the new paradigm of virtual work, it is necessary to reassess and determine what changes in the law might fit new forms of whistleblowing more appropriately. This article hopes to begin that conversation.”

As Prof. Cherry’s article indicates, this is a murky area under current employment laws for workers and their employers alike. Those who contemplate engaging in some type of virtual whistleblowing should not blithely assume that their identities cannot be discovered or that the law protects them from retaliation. In situations where these factors matter, it would be prudent to obtain legal advice.

This article was originally printed on Minding the Workplace on July 9, 2013.  Reprinted with permission.

About the Author: David Yamada is a tenured Professor of Law and Director of the New Workplace Institute at Suffolk University Law School in Boston.  He is an internationally recognized authority on the legal aspects of workplace bullying, and he is author of model anti-bullying legislation — dubbed the Healthy Workplace Bill — that has become the template for law reform efforts across the country.  In addition to teaching at Suffolk, he holds numerous leadership positions in non-profit and policy advocacy organizations.

 

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