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Posts Tagged ‘Dodd-Frank’

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.

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.

2011 PayWatch: Average CEO Salary–$11.4 Million

Thursday, April 21st, 2011
Credit: Joe Kekeris

Credit: Joe Kekeris

While 25 million unemployed and underemployed U.S. workers are drowning, CEO pay skyrocketed by 23 percent, for an average salary of $11.4 million in 2010, according to the AFL-CIO Executive PayWatch. Released today, data compiled at PayWatch also show CEOs have done little to create badly-needed jobs, instead sitting on a record $1.93 trillion in cash on their balance sheets.

The 2011 Executive PayWatch features the compensation of 299 S&P 500 company CEOs and provides direct comparisons between those CEOs and the median pay of nurses, teachers, firefighters and others. For instance, while a secretary makes a median annual salary of $29,980, someone like Wells Fargo CEO John Stumpf rakes in $18,973,722 million—632 times the secretary’s salary. The pay gap between Wall Street and Main Street has widened egregiously—as recently as 1980, CEOs made 42 times that of blue-collar workers.

(Check out the 2011 Executive PayWatch to read case studies of six CEOs and find out how many firefighters it takes to make the salary of one CEO. You also can compare salaries of nurses, secretaries and others with CEOs and share the results with your friends on Facebook. Click here to share on Facebook.)

Maybe CEOs can’t focus on job creation because they have more pressing issues—like lobbying to repeal key provisions of a financial disclosure reform bill Congress passed last year. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires corporations to reveal the CEO-to-worker pay gap—and the Wall Street rulers don’t want to do that. (Click here to urge your member of Congress not to weaken Wall Street reform in any way.)180x200_paywatch2011

AFL-CIO President Richard Trumka says the AFL-CIO will work hard to defend this historic reform. The brazen attacks by Wall Street lobbyists to undermine reform “surprise and offend me,” Trumka says, “and I think they will surprise and offend most Americans.”

Apparently Wall Street doesn’t want people to know that while working Americans paid for the economic crisis with their jobs, their homes and their retirement savings, these Teflon CEOs escaped unscathed.

CEO pay has helped fuel the rapidly escalating income inequality in this country which has worsened over the past decade to levels not seen since the years before the Great Depression. The increase of income inequality prior to the 2008 financial crisis and the recent recession is striking: Between 1993 and 2008, the top 1 percent of Americans captured 52 percent of all income growth in the United States.

About the Author: Tula Connell got her first union card while she worked her way through college as a banquet bartender for the Pfister Hotel in Milwaukee (she was represented by a hotel and restaurant local union—the names of the national unions were different then than they are now). With a background in journalism—covering bull roping in Texas and school boards in Virginia—she started working in the labor movement in 1991. Beginning as a writer for SEIU (and OPEIU member), she now blogs under the title of AFL-CIO managing editor.

This blog originally appeared in AFL-CIO on April 19, 2011. Reprinted with Permission.

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