Senate Considering Antitrust Whistleblower Protections Again


The bipartisan bill promoting whistleblower protections for individuals reporting antitrust violations, the Criminal Antitrust Anti-Retaliation Act (“CAARA”), is back in the Senate.

The law is co-sponsored by Senators Charles Grassley (R-Iowa) and Patrick Leahy (D-Vermont). On November 2nd, S. 807 advanced out of the Senate Judiciary Committee and the next step would be a vote by the Senate. Two years ago, the bill was adopted by the Senate unanimously but did not receive a vote in the U.S. House of Representatives.

The law amends the Antitrust Criminal Penalty Enhancement and Reform Act of 2004 to provide covered individuals compensatory damages (reinstatement, backpay and special damages including litigation costs, expert witness fees and reasonable attorney’s fees) through a lawsuit.

The bill requires an individual who is discharged or otherwise discriminated against in violation of the law to file a complaint with the Secretary of Labor within 180 days of the date on which the violation occurs. If the Secretary of Labor has not issued a final decision within 180 days, and other conditions are met, the claimant can bring an action in the appropriate district court of the United States. This procedure mimics the procedure of some other employment law statutes.

The law protects reports of what a covered individual reasonable believes to be criminal antitrust conduct in violation of Section 1 or Section 3 of the Sherman Act made to a member of Congress or a federal regulatory or law enforcement agency. The law also covers various acts related to assisting a Federal Government investigation or proceeding, including testifying in it or otherwise assisting.

The law does not provide protections to individuals that planned and initiated a violation of the antitrust laws, another criminal law in conjunction with the violation of the antitrust law, or an obstruction or attempted obstruction of an investigation by the Department of Justice.

One thing that the law does not do is offer rewards to antitrust whistleblowers. In the past, whistleblower protections have in some instances been a precursor to subsequent adoption of a whistleblower reward program. Most recently, the Motor Vehicle Safety Whistleblower Act, adopted as part of the FAST Act, was preceded by the Moving Ahead for Progress in the 21st Century Act (MAP-21).

We’ll continue to post updates to the progress on CAARA as we find them.

SEC, CFTC Directors Speak on Whistleblower Programs


The Chief of the SEC’s Office of the Whistleblower, Jane Norberg, and the Director of the CFTC Whistleblower Office, Christopher Ehrman, spoke recently at the Practicing Law Institute’s program on June 28, 2017, titled Corporate Whistleblowing in 2017. Their comments covered a wide range of hot topics in the field of whistleblower law and were relayed in a recent JDSupra article, so we thought them appropriate to briefly detail here for current and potential Dodd-Frank whistleblowers.

Both Norberg and Ehrman emphasized that the programs are open for business and going well. Norberg said that the United States has recovered over $1 billion as a result of enforcement actions and related actions arising from whistleblower tips. Ehrman emphasized that the CFTC Whistleblower Office is growing, seeing an increase in staffing, tips, and high quality tips. Ehrman expected 2017 to be a strong year for the CFTC Whistleblower program.

About the SEC Whistleblower program, Norberg spoke significantly on whistleblower protection. Protecting whistleblowers from retaliation and efforts to chill their reports are a top priority according to Norberg. Norberg believes that that the SEC’s interpretation of the Dodd-Frank anti-retaliation provision to protect whistleblowers who report internally is the only one consistent with the incentives to encourage internal reporting put in place by the SEC. Norberg also discussed Rule 21F-17, but did not definitely state whether the Rule also covers non-US employment agreements. Instead, she said that it would depend on the facts and circumstances of the case.

About the CFTC Whistleblower program, Ehrman spoke specifically on the changes to the CFTC whistleblower program that will go into effect on July 31, 2017. As he explained, the changes are intended to enhance whistleblower protections and revise the claims review process to mirror the SEC program. Ehrman did not provide a definitive answer to the question of whether the changes would apply retroactively. He said that they are considering it and would let everyone know when they have reached a definitive answer.

We will continue to post information here that provides insight as to any changes in the program during the Trump Administration.

Supreme Court to Review SEC Internal Whistleblower Retaliation Protections


The Supreme Court will next term review a whistleblower retaliation lawsuit, Somers v. Digital Realty Trust, Inc., to determine whether the anti-retaliation protections of the Dodd-Frank Act protects employees who report misconduct internally. The Ninth Circuit, in a split decision, determined that the Dodd-Frank Act protected the employee from retaliation as a whistleblower in spite of the fact that he did not file a Form TCR with the U.S. Securities and Exchange Commission.

We were pleased to see the Ninth Circuit’s decision in March upholding the SEC interpretation of the anti-retaliation provisions and hope that the Supreme Court settles this issue once and for all in favor of protecting whistleblowers. It agreed with the Second Circuit, which has previously reversed a contrary district court decision in Berman v. Neo@Ogilvy, LLC, concluding that Dodd-Frank was ambiguous on the definition of whistleblower and that the SEC’s resolution of that ambiguity was entitled to deference under Chevron.

Internal reporting has been a controversial area of the whistleblower law since Congress passed Dodd-Frank. Companies initially petitioned the SEC to require all whistleblowers report internally first before filing a Form TCR. They argued that providing a monetary incentive for SEC whistleblowers without requiring internal reporting would undermine their compliance processes. The SEC nevertheless decided to allow most whistleblowers the option to file a Form TCR without internal reporting.

The SEC then issued a regulation defining the term whistleblower with respect to the retaliation provisions of the Dodd-Frank Act. Rule 21F-2 adopts a different definition of whistleblower for the anti-retaliation section than Congress specified in the definition section of the bill.

The SEC has justified this position in numerous court filings as necessary because the bill’s definition of whistleblower otherwise makes meaningless the anti-retaliation provision set forth by Congress. The SEC filed an amicus brief with the SEC in Somers defending its position and supporting its position that the anti-retaliation protections of Dodd-Frank apply to internal whistleblower.

The Fifth Circuit was the first court of appeals to take up this question in Asadi v. G.E. Energy (USA) L.L.C., and it sided with the company. This decision setup the circuit split which will be resolved by the Supreme Court next year.

CFTC Completes Whistleblower Program Rule Changes


The CFTC has issued final rules based on its previously proposed changes to the CFTC whistleblower program. The changes have left the core of the program intact while strengthening the whistleblower retaliation protections, harmonizing the rules with the SEC program and adding transparency to the process for reward claims.

McEldrew Young was one of two law firms to comment on the proposed changes. We appreciate the government’s efforts to improve the program and welcome the changes which we believe are on balance positive for whistleblowers.

The changes include:

Sharing of Information

The rules now provide for the CFTC to share information to specified organization and requires those organizations to maintain the confidentiality of the whistleblower in accordance with section 23(h)(2)(A) of the Commodity Exchange Act.


The Commission has recognized its ability to bring an enforcement action against a company that has engaged in whistleblower retaliation. It also recognized that the anti-retaliation protections can extend to at least some internal whistleblowers prior to the filing of a Form TCR.  It further prohibits any person from impeding communications between the CFTC and whistleblowers.

These changes move the CFTC program closer to the rules followed by the SEC program. Previously, the CFTC rules required the submission of a Form TCR to begin the Dodd-Frank anti-retaliation protections and did not permit agency enforcement actions.

Original Source

The CFTC extended the deadline by 60 days to become an original source after submitting information internally to a corporation or to another government agency or specified organization. Whistleblowers now have 180 days to submit the information to the CFTC in order to have the CFTC apply the date of the initial submission to its submission.

Awards Process

Waivers – The Commission clarified that any procedural requirement may be waived upon a showing of extraordinary circumstances.

Related Actions – The Commission is not going to track, monitor or report on related actions. It is now the responsibility of the whistleblower and their counsel to track related actions.

Procedural – A few different changes have been adopted here, including a streamlined process for facially ineligible award claims and a new process for claims reviews.

This is just a summary of the rule changes.  We encourage all interested parties to read the rules in full as well as the CFTC commentary justifying the changes.  The new rules were adopted unanimously.  The rules will go into effect sixty days after publication in the Federal Register.

Our CFTC whistleblower attorneys represent individuals reporting violations of the Commodity Exchange Act and CFTC rules. Call 1-800-590-4116 for a free, confidential initial consultation.

How 700 Bank Whistleblowers Get Ignored


Like much of America, we have been following the story of Wells Fargo’s sales tactics and the government response to it. We haven’t discussed this matter in depth yet here on our blog (just a brief comment about its implications for whistleblower retaliation), so I thought we would discuss it following the media reports that the Feds knew of 700 whistleblower complaints at the bank in 2010 regarding its sales practices.

Our whistleblower attorneys speaks regularly with employees and ex-employees of corporations of all sizes after the individual has internally reported suspected wrongdoing and the business has failed to adequately address their concerns. It is not surprising at all to us that tips would be ignored by a company. If large corporations corrected violations of the law after learning about them from their employees, we would not be in the practice of whistleblower law because there would be no need for us.

We also understand how these tips could be packaged together, explained away by the company and dismissed upon Government review. But we will discuss that more below.

Since we haven’t posted on this topic before, let’s briefly recap what has happened. Wells Fargo was fined $185 million, including a $100 million penalty by the Consumer Financial Protection Bureau, last September for fraudulently opening customer accounts. The practice involved as many as 1.5 million bank accounts and 565,000 credit card applications opened without the customer’s consent over a period dating back to at least 2011. Recently revealed evidence suggests it may have been going on since at least 2004 or 2005. It also agreed to settle a class action by consumers regarding the practices for $110 million.

After the practice became public, several ex-employees came forward to discuss their whistleblowing. Between 2009 and 2014, at least five former Wells Fargo employees notified OSHA that they were fired due to concerns about the opening of unauthorized accounts and credit cards. OSHA has recently ordered Wells Fargo to rehire one former manager and pay $5.4 million for its whistleblower retaliation, the largest award ever issued by the agency for an individual whistleblower.

There have been a great deal of investigations concerning the practices at Wells Fargo, both from government agencies and Wells Fargo. Two reports, one from Wells Fargo and one from the government regarding how to improve its regulatory oversite, have been released recently.

A few weeks ago, the Independent Directors of the Board of Wells Fargo put out a 113 page investigation report on sales practices. It examines in substantial detail the roles of numerous individuals and entities within Wells Fargo.

Unfortunately, there is so much evidence in the report that everyone knew Wells Fargo had a problem (at least as early as the December 2013 Los Angeles Times report), that it doesn’t spend much time on the issue of how it could improve its handling of whistleblower tips. Indeed, the most substantial examination of a whistleblower matter is on page 75 concerning a 2011 letter by a group of terminated bankers and tellers from a California branch to then CEO John Stumpf claiming they were unjustly terminated for practices condoned by branch management and happening across the bank.

The report does announce a few organizational changes which may impact how whistleblower issues are treated. It highlights the creation of a new Office of Ethics, Oversight and Integrity (with oversight by the Board’s Risk Committee). It also notes on page 17 that the Board’s Human Resources Committee will increase its oversight of terminations and the EthicsLine implementation.

This may not be the only report put out by Wells Fargo so it is possible one will follow later about changes to its handling of whistleblower tips. Wells Fargo has undertaken efforts to review non-anonymous calls to its confidential ethics line over the past five years to determine whether the employees were terminated within a year of the call. It is not yet known whether it will release publicly the details of that investigation.

The report that triggered the media focus on 700 whistleblowers was issued by the Office of the Comptroller of the Currency (OCC). The OCC is the primary regulator of banks chartered under the National Bank Act and Wells Fargo falls within its Large Bank Supervision operating unit. The Office of Enterprise Governance and the Ombudsman at the OCC completed its internal report two days ago and provided its lessons learned in the aftermath of the revelations about sales practices at Wells Fargo. Much of that report focused on what went wrong with the handling of tips from whistleblowers. It was a shorter document however (13 pages if memory serves).

The OCC report found Wells Fargo had issues with the handling of both consumer complaints and whistleblower cases. Among other things, Wells Fargo failed to document resolution of whistleblower cases and failed to follow up on significant complaint management and sales practices issues. When asked in 2010 about a high number of complaints by the Government, a Wells Fargo Senior Executive Vice President said that company culture generated a high volume of complaints and then they are investigated and addressed.

The OCC itself received 14 whistleblower tips about sales practices from mid-March 2012 to early September 2016. Just over 50% had no documentation in the regulator’s system. Both whistleblower tips and consumer complaints at the OCC are taken in by the Customer Assistance Group (CAG).

The report made numerous suggestions to improve the OCC and prevent a similar situation from happening again. Among the suggestions were for periodic review and analysis of complaints and whistleblower cases, as well as greater efforts to inform the public how to communicate whistleblower information to the OCC.

After this somewhat long review, we are back at the central issue here: how and why whistleblowers get ignored.

1. They don’t consider it a material issue for the company.

Wells Fargo reported $88.26 billion in revenue in 2016. To resolve the allegations concerning what was a massive multi-year violation of the law cost roughly $300 million. At some point, perhaps it should be said (like at many Wall Street investment banks) that government fines like these are just a cost of doing business. Wells Fargo saw 1% of its staff was being dismissed every year for bad sales practices and thought that number was great because 99% were acting ethically.

2. Lack of focus.

We speak to a great number of people that feel every violation of the law, no matter how small, is a vital national issue. As a result, they lump together both important and unimportant matters when they blow the whistle. When highly speculative matters of minor importance get tossed out in the same breath as serious violations of the law, it makes everything less credible.

3. Poor articulation of the details.

The law is complex. So are the factual scenarios that can arise. When non-lawyers try to explain violations of the law, they often oversimplify the facts and the law. If it is not articulated properly, it can be unconvincing. There may be various shades of grey obscuring a black and white violation of the law.

4. No documentation.

In the electronic age, documents matter. If there is no evidence presented, it is harder to disprove witness statements to the contrary.

5. Aggregation of reports.

It sounds like the government was working from a company summary of the EthicsLine complaints. If there was a detailed accounting and investigation of each incident, it would not have been so easy to dismiss. Aggregation hides the severity and specificity of events where the details matter.

6. Many don’t have lawyers.

Would you take an anonymous call from a random employee as seriously as you would a complaint from a high powered attorney seeking money on behalf of a specific client? There is a reason that the EthicsLine is handled by HR and not the Legal Department. Those that do get lawyers are dismissed as disgruntled employees.

7. The tone at the top is wrong.

When the focus is always on meeting advancing sales targets, compliance takes a back seat. This includes investigations of high performers accused of wrongdoing.

8. There’s no fear of the consequences.

“Everyone is doing it.” This isn’t a big deal.

9. Too many excuses.

The report details how Wells Fargo was overrun by individual wrongdoers to the point where it became a systemic and widespread problem. It failed to change the underlying causes of this behavior or the systems that allowed it to happen. Instead, they ended up firing more than 5,000 bad apples before the Government stepped in to say enough is enough.

A Proposed Solution

There is a way to get rid of the excuses and put more power in the hands of whistleblowers. It is not mentioned by the OCC report. But it is what happened at the SEC. Congress passed the Dodd-Frank Act to reward whistleblowers that come forward. It created a department within the SEC to ensure that whistleblowers had advocates. This program has been a success, paying out more than $100 million in rewards in the first six years.

This was the result of the ponzi scheme by Bernie Madoff. Despite a whistleblower tip, the SEC missed it. So Congress gave whistleblowers a monetary incentive to come forward. Now, investment banks are well aware of the SEC whistleblower program. If they are not taking internal employee whistleblower tips seriously, they do so at their peril.

There has been much discussion about rewarding bank whistleblowers. Former NY Attorney General Eric Schneiderman even proposed legislation in New York State to protect and reward banking, insurance and financial service whistleblowers in 2015.

FIRREA would be one mechanism for the federal government to do so. FIRREA is the Financial Institutions Reform, Recovery and Enforcement Act. It currently provides rewards of up to $1.6 million for whistleblowers providing information about fraud against federally insured financial institutions. Before leaving office, former Attorney General Eric Holder told an audience at New York University School of Law that lifting the cap would significantly improve the Justice Department’s ability to gather evidence of wrongdoing in complex financial crimes. FIRREA has been getting increasing usage both as a tool against mortgage fraud and even cases of consumer fraud involving auto loans. It makes sense to expand it.

It should come as no surprise that we would support this solution. When Congress wanted to put a stop to delayed product recalls, it gave the Transportation Secretary the power to pay auto whistleblower rewards and increased potential fines from the NHTSA. Doing the same for bank whistleblowers would give the OCC a substantial incentive to take control of its whistleblower process and employees to gather the evidence needed to put a stop to Wells Fargo type practices earlier.

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Barclays Whistleblower Process Disappoints


The Justice Department is reportedly investigating efforts by Barclays CEO Jes Staley to unmask a whistleblower who sent two anonymous letters to the bank’s board of directors complaining about the hiring of a mid-level executive. Barclays reportedly asked the U.S. Postal Service for assistance in tracking down the sender of the letters, though it claims that it never learned the identity of the individual. It is now being investigated for possible criminal charges and/or violations of the Dodd-Frank Act. The New York State Department of Financial Services is also investigating.

Barclays, based in the United Kingdom and operating in the United States as well as many other countries, falls under a wide range of regulations that protect whistleblowing. U.K., for example, requires big banks to permit employees to raise issues in confidence and appoint a whistleblowing champion among senior managers. Clearly, this message has not been conveyed to the top levels of management, since Barclays internal investigation has concluded the CEO honestly but mistakenly thought he was permitted to track down the sender of the letter.

This obviously doesn’t bode well for whistleblowers. Despite both anti-retaliation protections and an internal whistleblower champion, the CEO of the 16th largest bank in the world (measured by total assets in 2016 by Relbanks) failed to respect the whistleblower process. And what happened to the whistleblower champion? The whistleblower is fortunate that he or she didn’t trust the bank’s internal process and mailed the letter anonymously.

This conduct unfortunately does not surprise us. We have been disappointed more than once by the conduct of large corporations with respect to whistleblowers. It is for this reason that we suggest all employees secure a lawyer before complaining of corporate wrongdoing, whether internally or externally. The laws and regulations are complicated and you do not want to make a mistake that leaves you open to retaliation without a remedy.

We hope that the U.S. Government will send a message to Barclays. The fact that they are investigating the bank for improprieties with respect to this employee is in and of itself a step in the right direction.

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IRS Whistleblower Retaliation Protections Proposed in Senate


Senators Chuck Grassley and Ron Wyden have proposed the IRS Whistleblower Improvements Act of 2017 in the U.S. Senate today.  If adopted, the law will provide for (1) enhanced communications between the Internal Revenue Service and whistleblowers, and (2) anti-retaliation protections for tax whistleblowers.  Both would be significant improvements to the IRS whistleblower program created a decade ago.

Communications between the IRS and whistleblowers have been more difficult to date than other programs because of concerns regarding the protection of taxpayer privacy.  Although the law currently provides for confidentiality agreements with whistleblowers, they are not extensively used.  The new bill would specifically authorize the IRS to exchange information with whistleblowers where doing so would benefit the investigation.  The bill also requires status updates for whistleblowers at critical junctures in the process.  It is hoped that these two measures will foster more cooperation between the two parties as they jointly fight tax evasion.

Anti-retaliation protections have been a missing piece in the IRS whistleblower program for some time.  Without it, tax whistleblowers who do not fall within an applicable state law or the Sarbanes-Oxley Act (SOX) may find themselves without a legal remedy if they are fired for whistleblowing.  Congress has already offered this measure to individuals reporting fraud under both the False Claims Act and the Dodd-Frank Act.  It is a simple addition to the law that is long overdue.

Senator Grassley is an experienced participant in the fight for additional protections.  He has been a driving force behind whistleblower rewards and protections for some time.  The measures described above were previously added by amendment to the Taxpayer Protection Act of 2016.  However, that bill was not considered by the U.S. Senate after it passed through the Senate Finance Committee.

We look forward to reading the legislation and supporting it throughout its journey in Congress.  It is definitely needed.

9th Circuit: Internal SEC Whistleblowers Can Sue Under Dodd-Frank Anti-Retaliation Provision


On a 2-1 decision, the Ninth Circuit has affirmed the right of internal whistleblowers to sue under the Dodd-Frank Act after they are retaliated against for informing their company of suspected violations of federal securities laws. The circuit split on anti-retaliation protections for internal SEC whistleblowers now consists of the Second and Ninth Circuits in favor and the Fifth Circuit against.

In the Ninth Circuit case, the employee reported several possible securities law violations to senior management and was terminated shortly thereafter. The Ninth Circuit opinion said that he was not able to report his concerns to the SEC before he was fired. After suing for retaliation, the defendant sought to dismiss, arguing that he did not meet the definition of “whistleblower” under the Dodd-Frank Act.

The opinion in Somers v. Digital Realty Trust Inc., Case No. 15-17352, 2017 WL 908245 (9th Cir. March 8, 2017) sides with the Second Circuit in Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2015) and disagrees with the Fifth Circuit in Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620 (5th Cir. 2013).

The majority opinion in Somers notes the ambiguity in the statute on the definition of whistleblower as well the limited scope of protections provided by a strict interpretation of the text which would contravene the Congressional intent. Moreover, it notes that the explicit reference to internal reporting provisions of the Sarbanes-Oxley Act meant that Congress could not have been applying the previous definition of whistleblower to this subsection. It then defers to the SEC regulation as a reasonable agency interpretation of the ambiguity pursuant to the Chevron doctrine.

Since Asadi, the SEC has waged war against companies arguing that internal whistleblowers are not protected under Dodd-Frank. It has submitted amicus briefs in support of its position in several cases, including Berman and Somers. It looked close for a while there as a few courts sided with the defendants following Asadi. Now, it has hopefully been firmly resolved in favor of protecting internal whistleblowers.

Review of SEC Rule 21F-17 (Impeding Whistleblowers)


Brandon Lauria will speak on SEC enforcement of Rule 21F-17 at a Knowledge Group live webcast on March 9, 2017.  Rule 21F-17 prohibits confidentiality agreements and other measures which restrict access to the SEC whistleblower program.  The one hour webcast at noon (EST) will cover the rule protecting whistleblower communications with the SEC and recent civil enforcement actions brought by the SEC against corporations for impeding communications with whistleblowers.

Over the last year, the SEC has included violations of Rule 21F-17 in eight enforcement actions.  This makes it a crucial area for whistleblower, employment and corporate attorneys to understand.

The rule states:

No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement (other than agreements dealing with information covered by § 240.21F-4(b)(4)(i) and § 240.21F-4(b)(4)(ii) of this chapter related to the legal representation of a client) with respect to such communications.

The rule went into effect in 2011.  From April 2015 until January 2017, the SEC brought nine enforcement actions pursuant to the rule.  These nine actions can be grouped by type:

  • Confidentiality: Anheuser-Busch
  • Pre-Approval of Communications: KBR, Merrill
  • Information Limits on Communications: Merrill, Neustar, SandRidge
  • Prohibited Investigation Participation: SandRidge
  • Prohibited Filing Reward Claims: Health Net
  • Reward Waivers: Health Net, BlueLinx, Blackrock, HomeStreet
  • Attempted Identification/Threats: HomeStreet

Here is a brief summary of the enforcement actions by the SEC under Rule 21F-17 so far:

KBR, Inc. (April 2015)
KBR required witnesses in internal investigations to sign confidentiality statements indicating that they could be fired if they discussed the matters without approval from KBR legal dept. There were no specific instances of impeding communications. KBR settled with the SEC for $130,000.

Health Net, Inc. (August 2016)
From 2011-2013, the company specifically prohibited filing claims for an SEC whistleblower reward.  After revisions, the company still created severance agreements requiring waiver of the right to a whistleblower reward until 2015.  The parties settled for $340,000.

BlueLinx Holdings Inc. (August 2016)
In 2013, the company added language to severance agreements requiring waiver of possible whistleblower awards.  The SEC and BlueLinx settled for $265,000.

Merrill Lynch (August 2016)
Merrill severance agreements prohibited disclosure of confidential information unless pursuant to formal legal process or written approval by Merrill. In 2014, Merrill clarified the agreement to provide that employees could initiate communications with the SEC but limited the types of information that could be provided. No specific employees were impeded.

Anheuser-Busch InBev (Sept. 2016)
A 2012 separation agreement for a whistleblower required secrecy and confidentiality of material. As a result, the Whistleblower stopped communicating with SEC. In 2015, the company amended its separation agreements to allow whistleblowing.

Neustar (Dec. 2016)
From 2011 until 2015, the company had a broad non-disparagement clause in its severance agreements. This clause impeded communications between a specific former employee and the SEC. The company and the government settled the case for $180,000.

SandRidge Energy (Dec. 2016)
SandRidge separation agreements prohibited participation in government investigations or disclosing harmful/embarrassing information.  The overall case, which included civil enforcement based on anti-retaliation protections, settled for $1.4 million.

BlackRock (Jan. 2017)
From 2011 until 2016, BlackRock separation agreements required waiver of the right to recover financial incentives for reporting misconduct. The company settled with the SEC for $340,000

HomeStreet (Jan. 2017)
The company suspected a whistleblower and attempted to identify him or her. To one individual, it threatened to deny reimbursement for legal counsel. Their severance agreements also required waiver of rewards from whistleblowing.

Court Rules on Confidentiality Agreements for SEC Whistleblowers


A U.S. District Court in the Southern District of California has recently ruled on the validity of a SEC whistleblower’s defense to the enforcement of a company’s confidentiality agreement.  In the decision, the Court accepts the validity of a public policy defense to a limited whistleblower disclosure of confidential information concerning securities fraud.

The case arose after a whistleblower sued the company for retaliation.  The company brought counterclaims against the whistleblower-plaintiff for breach of the confidentiality clause of its employment agreement.  The whistleblower then asserted the public policy in favor of whistleblowing as a defense.

These issues have been more frequently litigated in the context of the False Claims Act, where whistleblowers (known as relators) are required to bring a qui tam lawsuit through the judicial system.  This litigation process permits companies to bring counterclaims, unlike standard submissions to the SEC whistleblower program where the whistleblower is not involved in the government’s enforcement action.

To briefly summarize the important areas of the decision for securities whistleblowers:

  • The public policy exception allowing breach of a confidentiality agreement by a whistleblower applies to SEC whistleblowers providing information to the U.S. Government.
  • The whistleblower has a public policy defense at least allowing a limited removal of documents from the company in order to demonstrate the fraud and protect against document destruction.
  • A SEC whistleblower retaliation complaint can rely on confidential information that is reasonably necessary to demonstrate the retaliation.
  • The whistleblower defense allowed does not offer protections for breach of the confidentiality agreement when a whistleblower provides confidential information to the press.

The ruling strengthens the protections for SEC Whistleblowers.  The SEC has independently pursued civil enforcement actions against companies recently both for retaliation against whistleblowers as well as impeding communications from SEC whistleblowers through a variety of tactics.

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