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Dodd-Frank Court Case Could Redefine Whistleblowing

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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.

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SEC Orders Company to Pay $500K For Whistleblower Retaliation

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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.


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.

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We Need a National Whistleblower Appreciation Day

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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.

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Snowden Leak Highlights Few Whistleblower Protections for Intelligence Contract Employees

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Mike ElkOn Sunday, The Guardian revealed that Edward Snowden, a 29-year-old information technology specialist employed by the federal contractor Booz Allen Hamilton, was its source for a series of bombshell leaks regarding the National Security Agency’s (NSA) surveillance apparatus. While Snowden’s leaks have raised a series of troubling questions about Americans’ privacy and the national security state, they also make clear how limited the privacy and whistleblower protections are for private contract employees working in the intelligence sector.

Under current federal law, employees working for the federal government have whistleblower protections that provide avenues for them to follow should they want to report potential abuses. As part of last year’s Whistleblower’s Protection Enhancement Act, rights for whistleblowers were enhanced for many categories of federal employees, but intelligence employees were excluded from coverage under the act. Likewise, intelligence workers—both federal and contract employees—were excluded from whistle blower protections offered to military contract employees under the most recent National Defense Authorization Act (NDAA).

While federal workers employed in intelligence gathering have less whistleblower protections than other federal workers, they are still able to raise their complaints with the Inspector General of the agency employing them or with members of Congress sitting on the Intelligence Committees. Under President Barack Obama’s Presidential Policy Directive 19 (PPD-19) issued last October, intelligence workers directly employed by the federal government received enhanced whistleblower protections against retaliation. By contrast, though intelligence employees employed for federal contractors like Booz Allen Hamilton are also allowed to report potential abuses to the Inspectors General of the agencies that contract with their employers, they have no protections against employer retaliation, such as being fired.

“Intelligence community contractors have been shut out of all of the recent reforms,” says Angela Canterbury, director of policy at the Project On Government Oversight (POGO). “They received no coverage under the WPEA for federal employees, the PPD-19 for IC civil servants, and were carved out of the contractor whistleblower protections in the NDAA—based on objections from the Congressional intelligence committees—leaving them with no specific protections for whistleblowing under the law. If you look at intelligence contractors, they have no protections under any of the laws. It really is an accountability loophole.”

The only recourse for conscience-stricken employees classified like Snowden have in these situations is to hope their superiors won’t fire them for reporting abuses. However, with a company like Booz Allen that receives 98% of its $5.76 billion annual revenue from the federal government, there is a substantial financial motivation to not draw any attention to abuses by the federal government.

“Where would a whistleblower go first,” asks Donald Cohen, executive director of the anti-privatization group In The Public Interest. “First, they [would] go up the chain of command and [reporting] it wouldn’t be in the interest of the chain of command. What is in the interest of the chain of command is to keep quiet and keep the contracts flowing. If you are in a public agency you may go up the chain of command and you may run into the same roadblocks but it is clear what you can do from there.”

Not only do intelligent contract employees have fewer whistleblowing protections, but the private corporations that employ them also have fewer legal restrictions when it comes to electronically monitoring and surveilling employees. According to Paul Secunda, a labor law professor at Marquette University, federal workers directly employed by the federal government receive at least some protections from the 4th Amendment against searching their communications, even on federal equipment, without first establishing reasonable cause.

Indeed last year, the FDA was caught employing a sophisticated electronic surveillance system to monitor disgruntled FDA employees who were communicating with Congressional staffers, journalists, federal Inspectors General (IGs), and the Office of Special Counsel (OSC) regarding problems with the design of a medical device. Following an investigation, last June the OSC released a “Memorandum For Executive Department and Agencies,” [PDF], which noted that:

agency monitoring specifically designed to target protected disclosures to the OSC and IGs is highly problematic. Such targeting undermines the ability of employees to make confidential disclosures. Moreover, deliberate targeting by an employing agency of an employee’s submission (or draft submissions) to the OSC or an IG, or deliberate monitoring of communications between the employee and the OSC or IG in response to such a submission by the employee, could lead to a determination that the agency has retaliated against the employee for making a protected disclosure. The same risk is presented by an employing agency’s deliberate targeting of an employee’s emails or computer files for monitoring simply because the employee made a protected disclosure.

However, since contractors are employed by private corporations, arbitrary searches by corporate entities on corporate property are legal, thus making it significantly more difficult for whistleblowers to pass on information without being detected by the corporations employing them.

“Look at Snowden himself, look at what he had to do,” says Secunda. “He couldn’t rely on the 4th Amendment. He basically had to flee the country. If he had still been an employee of the CIA, he would have been a public employee with protections against unreasonable search and seizure. He would have at least theoretically had more robust protections under the law. Given that he was no longer employed by the CIA, given that he was employed by Booz Allen, he does not fall under that state action doctrine against unreasonable search and seizure by the state.”

Already, more than one-third of the 1.4 million people in the United States with top secret security clearance are employed as private contractors. With fewer protections afforded to them, private contractors, many whistleblower advocates worry, could receive an even larger share of this type of work.

“There is not the same level of accountability. We have a situation where the intelligence community is largely run by contractors,” says POGO’s Canterbury. “Perhaps we should look at the influence of the profit motive. Look at a company like Booz Allen where 98% of their revenue is from the federal government. Are they going to recommend things in the national interest or things that are important to their bottom line?”

This article was originally printed on Working In These Times on June 11, 2013.  Reprinted with permission.

About the Author: Mike Elk is an In These Times Staff Writer and a regular contributor to the labor blog Working In These Times.

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U.S. Supreme Court to Hear Sox Whistleblower Case Involving Contractors

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secunda-paulThis past Friday, the United State Supreme Court granted cert. in the case of Lawson v. FMR LLC. The case concerns whether the Sarbanes-Oxley Act (SOX), which protects employees of publicly traded companies from retaliation for reporting financial improprieties, also protects the employees of private contractors of those companies. In the case, two fund investment advisors blew the whistle on a publicly-traded mutual fund which contracted for their services. The First Circuit found that the fund advisors were not covered by SOX protections.

The Court had asked the U.S. Solicitor General’s views on the case, and the SG recommended that the Court bypass the case in order to allow the issue to percolate among more circuit courts.  The case, however, was granted.

Among the issues to be decided: whether protecting the employees of contractors is mandated under the plain meaning of SOX and whether a finding of no coverage for such employees will discourage whistleblowers from bringing financial fraud allegations to the attention of the public. It should also be an interesting case because it is one of the first to examine the whistleblower protections of SOX and will likely provide guidance on how broadly or narrowly SOX should be interpreted to protect whistleblowers in the financial services industry.

This article was originally printed on Workplace Prof Blog on May 22, 2013.  Reprinted with permission.

About the Author: Paul Secunda is an associate professor of  law at Marquette University Law School.  Professor Secunda is the author of nearly three dozen books, treatises, articles, and shorter writings. He co-authored the treatise Understanding Employment Law and the case book Global Issues in Employee Benefits Law.  Professor Secunda is a frequent commentator on labor and employment law issues in the national media.  He co-edits with Rick Bales and Jeffrey Hirsch the Workplace Prof Blog, recently named one of the top law professor blogs in the country.

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