Categories: Financial Services

By John F. Fullerton III

At the Firm’s 32nd Annual Client Briefing held yesterday, I spoke on the financial services industry panel about the Dodd-Frank bounty program and the whistleblower anti-retaliation provisions of both the Dodd-Frank and Sarbanes-Oxley Acts.  Here are a few takeaways from that session:

  • There have been at least three reported awards from the SEC to anonymous tipsters under the Dodd-Frank bounty program, the most recent of which, earlier this month, was an award of $14 million to a whistleblower whose information led to the recovery of “substantial investor funds.”
  • Employees are not required to use the internal complaint procedures established by Sarbanes-Oxley before reporting alleged wrongdoing directly to the SEC or CFTC, although they may still be encouraged to so do; however, employers may not “impede” employees from speaking directly to those agencies, such as through confidentiality policies or provisions in separation agreements.  It remains to be seen how broadly “impede” is defined, whether it applies only to explicit restrictions or whether it expands to cover any actions by the employer that would arguably chill employees’ exercise of their protected right to report alleged wrongdoing directly to the SEC or CFTC.
  • Dodd-Frank’s whistleblower retaliation protection is even broader and more pro-employee than the Sarbanes-Oxley provisions, including the right to sue directly in court, double damages for violations, and a statute of limitations that can range from an unusually lengthy 6 to 10 years.
  • Although there is currently a split in authority among the federal courts on this issue, several decisions in the Southern District of New York here in Manhattan have held that a Dodd-Frank whistleblower is protected even if his whistleblowing is not to the SEC, as the statute seems to require, but rather, only to his supervisor or manager, as Sarbanes-Oxley allows.  This effectively means that anything that violates the Sarbanes-Oxley anti-retaliation provisions also violates Dodd-Frank, and employees are free to pursue identical claims simultaneously in federal court and through the administrative complaint procedures set forth in Sarbanes-Oxley.
  • In recent years, the Administrative Review Board (ARB) has issued decisions that have broadly interpreted the Sarbanes-Oxley whistleblower protection provisions in ways that make it easier for employees to sustain their claims.  In one such case, the ARB ruled that the whistleblower provision protects the employees of privately-held contractors and sub-contractors of publicly-held companies, opening up an enormous pool of potential claimants against employers who might not otherwise be covered by Sarbanes-Oxley.  A federal appellate court came to the opposite conclusion in a different case in May of this year.  The Supreme Court granted review and will hear argument in that case on November 12, 2013.  We will be reporting on that case here on this blog as soon as the decision is issued.
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