A Review of Recent Whistleblower Developments: July 18th

Whistleblower Developments is a periodic report covering significant cases, decisions, proposals, and legislation related to whistleblower statutes and how they may impact your business. Recent developments include:

Supreme Court Will Resolve Circuit Split Over Dodd-Frank Whistleblowers

SEC to Continue Whistleblower Program Despite Financial CHOICE Act
SEC Awards Over $4 Million to Two Whistleblowers in One Week
SEC Denies Whistleblower Award, Defends Eligibility Cut-Off
With Circuit Split Pending, Illinois District Court Dismisses Dodd-Frank Act Whistleblower Claim for Failure to Meet Act’s “Whistleblower”


Jury Upholds $7.96 Million Verdict
Court Affirms Dismissal of SOX Retaliation Claim
Amendments to the CFTC’s Whistleblower Rules
Supreme Court Will Resolve Circuit Split Over Dodd-Frank Whistleblowers

On June 26, 2017, the United States Supreme Court agreed to review whether the Dodd-Frank Act prohibits retaliation against internal whistleblowers who have not reported concerns over securities law violations to the U.S. Securities and Exchange Commission (SEC), and thus, to resolve a circuit court split.

By way of background, Paul Somers, the former Digital Realty Vice President of Portfolio Management, brought a lawsuit claiming the company discriminated against him based on his sexual orientation and then fired him in retaliation for reporting his supervisor’s violations of the Sarbanes-Oxley Act. The trial court denied Digital Realty’s motion to dismiss Somers’s claims, and the Ninth Circuit affirmed that decision. The trial court also certified the question of whether Somers qualified as a Dodd-Frank whistleblower to the Ninth Circuit. Find out more useful information on http://lenderliabilitylawyer.com.

In its opinion, the Ninth Circuit joined the Second Circuit in holding that the Dodd-Frank Act’s anti-retaliation provision “unambiguously and expressly protects” those who report to the SEC directly and those who report internally within an organization. The decision widened a split with the Fifth Circuit, and Digital Realty asked the Supreme Court to review this conflict and resolve it.

SEC to Continue Whistleblower Program Despite Financial CHOICE Act
As the Financial CHOICE Act works its way through Congress, former SEC Chair, Mary Jo White, made it clear the agency wants to continue its whistleblower award program despite the push back the proposed legislation could create.

Though the Financial CHOICE Act stands to limit those eligible for awards under the current whistleblower program, the changes would be minimal. One of the legislation’s proposed changes would affect co-conspirators. The current program allows the SEC to make whistleblower awards to co-conspirators even if they were involved in the wrongdoing, so long as the co-conspirators were not criminally charged. The Financial CHOICE Act is poised to prohibit awards to co-conspirators regardless of whether they are criminally convicted.

The legislation’s proposed prohibition on whistleblower awards to co-conspirators could also create an uptick in the number of Sarbanes-Oxley Act whistleblower claims. As of 2011, the number of whistleblower claims asserted under the Sarbanes-Oxley Act had fallen by 25 percent, while the total number of whistleblower claims under all other statutes (including Dodd-Frank) increased by more than 40 percent. The huge drop in the number of cases filed under the Sarbanes-Oxley Act could be attributed to the enactment of the Dodd-Frank Act. If the Financial CHOICE Act is ultimately enacted, including its prohibition on whistleblower awards to co-conspirators, the pendulum may swing back toward the Sarbanes-Oxley Act.

We will continue to provide updates on the status of this legislation and other proposed legislation that may impact the SEC’s Whistleblower Program.

SEC Awards Over $4 Million to Two Whistleblowers in One Week

On April 25, 2017, the SEC awarded whistleblower 4 million dollars, its tenth-highest whistleblower award to date. The tipster gave detailed information about securities misconduct and assisted the SEC throughout its investigation by providing industry-specific knowledge and expertise.

About a week later, the SEC awarded $500,000 to a corporate insider whose tips prompted and assisted with an enforcement action. The tipster informed the SEC about hard-to-detect violations of securities laws. The information led the SEC to conduct a formal investigation and take subsequent enforcement action.

Since the program’s commencement in 2011, the SEC has received over 10,500 tips and awarded hundreds of millions of dollars to whistleblowers. To date, enforcement actions attributed to whistleblowers’ tips have resulted in the SEC’s collection of over $953 million dollars.

SEC Denies Whistleblower Award, Defends Eligibility Cut-Off

The SEC has stood firm in its position that the Dodd-Frank Act cannot be applied retroactively to information provided before the law’s enactment. On June 8, 2017, the SEC denied a whistleblower award where the individual’s tips were given in 2007, four years before the Dodd-Frank Act’s enactment.

The SEC pointed to Section 924(b) of the Dodd-Frank Act and read it to limit an individual’s eligibility for a whistleblower award to information submitted in writing after the Act’s enactment, but before the implementation of any associated rules.

The SEC also declined the individual’s request to delay the final resolution of this award application and to allow for the filing of a rulemaking petition. In doing so, the SEC reasoned that the claimant could have filed a rulemaking petition when the rules were first adopted in 2011.

With Circuit Split Pending, Illinois District Court Dismisses Dodd-Frank Act Whistleblower Claim for Failure to Meet Act’s “Whistleblower” Definition

On June 7, 2017, the United States District Court for the Northern District of Illinois dismissed a would-be whistleblower’s case for failure to plead facts indicating that he qualified as a whistleblower under the Dodd-Frank Act.

In this case, the district judge ruled “(1) that the congressionally enacted definition of ‘whistleblower’ in the Dodd-Frank Act’s retaliatory provision is unambiguous and (2) that no administrative regulation can turn the jurisprudential world upside down to override that unambiguous provision.” Thus, because the plaintiff, in this case, reported internally, and not to the SEC, the district court decided that he did not qualify as a “whistleblower” under the express definition in the Dodd-Frank Act. This issue has been discussed in great depth by three other Courts of Appeals (discussed above and here), resulting in a circuit split on the issue, which the U.S. Supreme Court will resolve this term (as also discussed above).

The case is Jeffrey Martensen v. Chicago Stock Exchange, case number 17-C-1494, 2017 U.S. Dist. LEXIS 87621 (N.D. Ill. June 7, 2017).

Jury Upholds $7.96 Million Verdict
On February 7, 2017, a jury awarded Sanford Wadler $2.96 million in past economic loss damages and $5 million in punitive damages against Wadler’s former employer, Bio-Rad Laboratories, Inc. (Bio-Rad). On May 10, 2017, Bio-Rad’s motion for new trial was denied, and the jury’s verdict was upheld.

In support of its motion, Bio-Rad argued that Wadler’s claim under the Dodd-Frank Act failed because Wadler did not report the alleged violations to the Foreign Corrupt Practices Act (FCPA) directly to the SEC. However, the court looked to Somers v. Digital Realty Trust Inc., in which the Ninth Circuit held the Dodd-Frank Act extends protections to those who report internally. Based on the Ninth Circuit’s precedent, the court ruled Wadler was not required to report to the SEC, and Bio-Rad was not entitled to a new trial.

Further, Bio-Rad asserted that Wadler’s disclosure of alleged FCPA violations was not protected activity under the Sarbanes-Oxley Act. However, the court ruled that the FCPA is an amendment to the Securities and Exchange Act of 1934, and is codified within it. Thus, Wadler’s disclosures are protected under the Sarbanes-Oxley Act, and Bio-Rad was prohibited from retaliating against him for such disclosures.

Court Affirms Dismissal of SOX Retaliation Claim

On June 1, 2017, the Second Circuit affirmed the dismissal of a Sarbanes-Oxley Act claim because of the plaintiff, Ronald Kantin, lacked a reasonable belief that his former employer, Metropolitan Life Insurance Co., engaged in any fraudulent conduct. In his complaint, Kantin claimed that the company fired him because he informed them of alleged pricing irregularities related to the company’s joint life insurance policies, which Kantin claimed raised questions of illegal activity. Kantin also claimed he complained about commission payments that he considered unethical, but not illegal.

When seeking relief under § 1514A of the Sarbanes-Oxley Act, a plaintiff must have a reasonable belief that the conduct in question violated one of the enumerated provisions. The reasonable belief must contain both subjective and objective components. The plaintiff must not only believe the conduct constitutes a violation but that a reasonable person in similar circumstances would believe the conduct violates one of the provisions as well.

The Second Circuit held that Kantin failed to demonstrate both an objectively and subjectively reasonable belief that any of the conduct complained of constituted a violation. He admitted that he himself did not believe the commission payments he complained of were illegal. Further, he failed to show that a reasonable person would believe the pricing anomalies for joint life insurance policies in question violated any provisions of the Sarbanes-Oxley Act. As such, Kantin failed to establish that he engaged in protected whistleblower activity under the Sarbanes-Oxley Act.

The case is Ronald Kantin v. Metropolitan Life Insurance Company, case number 16-1091-cv, 2017 U.S. App. LEXIS 9635 (2d Cir. June 1, 2017).

Amendments to the CFTC’s Whistleblower Rules

Among other amendments to the rules, the Commodity Futures Trading Commission (CFTC) unanimously amended its Whistleblower Rules. The CFTC’s amendments are intended to strengthen anti-retaliation protections for whistleblowers and to enhance the CFTC’s process for reviewing whistleblower claims regarding possible violations of the Commodity Exchange Act (CEA).

Under the amended rules, a whistleblower retains the right to bring an action against an employer for retaliation. However, the CFTC now has the authority to bring an action against an employer who retaliates against a whistleblower, regardless of whether the whistleblower qualifies for an award. Additionally, the new amendments prohibit employers from preventing a whistleblower from communicating directly with CFTC staff about possible misconduct in violation of the CEA by using a confidential, pre-dispute arbitration agreement. Under the amended CFTC Whistleblower Rules, whistleblowers may not receive an award if they have already been granted an award by the SEC for the same action under the SEC’s whistleblower program.

The CFTC amendments also establish a new process for determining whether an award claim should be granted or denied. The CFTC’s new claims review process replaces the Whistleblower Award Determination Panel with a Claims Review Staff. Additionally, whistleblowers will now have an opportunity to review the record and contest the decision before the CFTC issues a Final Determination of his or her eligibility for a whistleblower award.

The CFTC’s amendments will go into effect 60 days after publication in the Federal Register. For more information on these rule changes, please see the CFTC’s Fact Sheet.

Anti-Graft: Lawmakers, CSOs Back Law to Protect Whistleblowers

The need to safeguard the lives and properties of whistleblowers has been identified as an indispensable tool in the fight against corruption.

Arising from a two-day stakeholders summit on the Whistleblowing and Legal Protection Bill held in Abuja, lawmakers of the Federal House of Representatives and some notable civil society organizations affirmed that protecting whistleblowers from all forms of retaliation would promote and ease the efficient exposing of corruption, just as it would also enhance openness and accountability in government and corporate workplaces. ‎

The summit, which attracted participants from both within and outside Nigeria, was organized by the HEDA Resource Centre, the PremiumTimes Centre for Investigative Reporting, with collaboration from the House of Representatives’ Committee on Financial Crimes.

According to the communique signed by the chairman of the House of Representatives’ Committee on Financial Crimes, Hon. Kayode Oladele; chairman of HEDA, Mr. Olanrewaju Suraju, and Manager, PremiumTimes Centre for Investigative Reporting, Joshua Olorunfemi, ‎the whistleblowers’ law is desirable for the protection of whistleblowers to create the necessary impetus in the fight against corruption.

Earlier while declaring open the seminar, the speaker of the House of Representatives, Hon. Yakubu Dogara bemoaned the rate of corruption in the country and the negative impact on the social, cultural economic, political and spiritual well-being of the people.

Notable observations made by the stakeholders as pointed out in the communiqué ‎are that corruption is partly because of the moral meltdown in Nigeria owing to years of misrule and gross manipulation of the social and economic resources towards person ends instead of promoting the public good.

Also, ‎it was identified that whistleblowers play an essential role in exposing corruption, fraud, mismanagement and other wrongdoing that threaten public health and safety, financial integrity, human rights, the environment and the rule of law. ‎

“That a deliberate communication plan is required. Whistleblower Act is not an end, therefore, what happens after the law is passed is of crucial importance.

“That there should be some none – negotiable minimum aspects of the bill that should be considered: Role for citizens as potential critical mass with the right to use the law; Protecting the citizen whistle blower; Protecting institutions that are traditionally whistleblowers – media, investigative organizations; Rigorous evidence without sacrificing opportunity,” it observed.

While being mindful of the fact that for the current fight against corruption to record any success, the three arms of government must be on the same page to unite against the cankerworm of corruption through collective action; the representatives of the civil society, labor, media and other stakeholders at the parley highlighted handful of recommendations that will enhance the robustness of the whistleblowers’ bill.

Its resolutions include: “That a law is desirable for the protection of whistle blowers so as to create the necessary impetus in the fight against corruption and that the civil society has a critical role to play in the anti-corruption campaign.

“That the bill should be inclusive by broadening the scope of stakeholders to ensure their participation in the conception, development, and drafting of the bill. These stakeholders should include but not limited to the Presidency, the Executive, the Judiciary, the media, and other relevant stakeholders.

“That information on the bill should be taken to the grassroots to create greater awareness about it and mobilize the mass of people around it.

“That the bill can only be strengthened through strong and effective institutions like the judiciary, the police, and the other agencies responsible for the effective implementation of laws.

“That a technical team is constituted to ensure the harmonization of the two bills before the House of Representative and the one recently passed by the Senate for effective impact.

“That Nigerian government should set up a Working Group that will sustain peer review mechanism for the monitoring, implementation, and execution of the law and that the Working Group should include the civil society groups and other stakeholders.

“‎That National Assembly be reminded that the whistleblower policy has worked so well and can only be better strengthened by a law or act and this should not be delayed so the impression is not created of a reluctant NASS,” among others.

In attendance at the seminar were: Chairman and members of the House Committee on Financial Crimes; representatives of Open Government Partnership, Office of the Attorney General of the Federation; Director General, National Orientation Agency; representative of United Nations Office on Drugs and Crimes; representative of the Acting Chairman of EFCC; media practitioners, labor unions, civil society leaders; NUJ President; and acting President of National Youth Council;

Keynote address on Citizenship and Fight Against Corruption; Promoting Civil Participation and Protecting Actors Under a Whistleblower Protection Law was delivered by representative of the Acting Chair of EFCC, Mr. Ibrahim Magu.

Wisconsin Whistleblower on Political Campaigning by Postal Workers Says Sen. Baldwin Never Responded

Marshfield — The Wisconsin man who blew the whistle on political campaigning by postal workers says U.S. Senator Tammy Baldwin’s office never responded to his concerns, an accusation Baldwin’s office denies.

Timm Kopp, a letter carrier from Marshfield, grew concerned that postal workers could take time off work to campaign for their unions’ preferred Democratic Party candidates, causing staff shortages.

A federal investigation found the U.S. Postal Service had violated a federal law, and the agency has promised changes.

“I never expected it to get to this point. Basically, all I did is, I wanted to raise concerns about things that were not being done correctly,” Kopp said during July 19 testimony before the U.S. Senate Homeland Security Committee.

Investigators found that the Postal Service allowed nearly 100 workers in several states, including Wisconsin, to take unpaid time off to do political activity for their union. The practice cost the Postal Service $90,000 in overtime to fill staff shortages, the U.S. Office of Inspector General found.

In his written testimony, Kopp said he called the offices of Baldwin, U.S. Sen. Ron Johnson, and U.S. Rep. Sean Duffy last fall. He wrote that it took about a week before Johnson’s office responded. Duffy’s office also called back, he said.

“I got no reply at all from Senator Baldwin’s office,” Kopp said in his testimony.

Bill Neidhardt, a spokesman for Baldwin’s office, said the senator’s staff had no record of Kopp contacting the office about the Postal Service ethics issue.

“We have records of Mr. Kopp contacting our office by email over 30 times between 2013 and 2015 about various other issues which he got a response to, but our office has no record of Mr. Kopp emailing us or connecting with our office about this issue in 2016,” Neidhardt said.

The Office of Inspector General told Baldwin’s office about the Postal Service issue at the end of November, after the 2016 election, Neidhardt said.

During a follow-up telephone interview with FOX6 News, Kopp was adamant he called both Wisconsin senators’ offices so it wouldn’t become a political issue. He said he kept no records of his phone calls.

During his Senate committee testimony, Kopp said he wasn’t interested in a political controversy.

“I did not want this to be a partisan thing,” he said July 19th. “I wanted the general public to not lose trust in the integrity of the Post Office.”

Wisconsin Republicans criticized Baldwin over the issue.

“This is yet more evidence that after two decades in Washington, Senator Baldwin puts her liberal special interest allies ahead of Wisconsin,” said Alec Zimmerman, a GOP spokesman.

Postmaster General Megan Brennan said her agency will stop allowing workers to take unpaid leave to campaign for political candidates.

Baldwin supports that, and favors Congressional oversight to ensure the changes happen, Neidhardt said.