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Whistleblower Reward and
Retaliation Claims: Current
Developments
Sean McKessy, Securities and Exchange Commission
Steven ...
RECENT SEC
WHISTLEBLOWER
AWARDS
Recent SEC
Whistleblower Awards
• Impact of 9/22/14 $30M award
• Circumstances under which persons with
internal audit or ...
Gag clauses in
settlement agreements
and confidentiality
agreements
Gag Clauses
From OWB Annual Report:
•OWB has been working to identify employee confidentiality,
severance, and other kinds...
• OSHA must approve all settlement agreements
• OSHA must approve privateprivate (third-party) settlement
agreements even ...
SEC ENFORCEMENT ACTION FOR
WHISTLEBLOWER RETALIATION
SEC Enforcement Action for
Whistleblower Retaliation
• Section 21F(h)(1) of the Exchange Act prohibits employers from
reta...
Practical implications
of the recent U.S.
Supreme Court's
Lawson v. FMR LLC
decision
SOX 806 – Who is Covered?
• Company that registers a class of securities
under Section 12 of the 1934 Securities and
Excha...
SOX 806 – Who is Covered?
• A nationally recognized statistical rating
organization
• Any “officer, employee, contractor,
...
“Officer, Employee, Contractor,
Subcontractor or Agent”
• Lawson v. FMR, No. 12-3 (Mar. 4, 2014)
– SOX protects employees ...
Impact of Lawson
• What is the statute’s reach?
– Employees of 5,000 public companies
– Employees of 6 million private com...
Sarbanes-Oxley and
Dodd-Frank Protected
Conduct
Sarbanes-Oxley Protected Conduct
• Sylvester v. Parexel Int’l, LLC, ARB 07-
123, 2011 WL 2165854 (May 25, 2011)
– Protecte...
Sarbanes-Oxley Protected Conduct
• Will federal courts adopt Sylvester?
– Nielsen v. AECOM Tech. Corp., No. 13-235-cv
(2d ...
Dodd-Frank Act Protected Conduct
• Protected activity if:
– Provided information to the SEC ;
– Provided assistance in any...
Dodd-Frank Act Protected Conduct
• Does it protect internal disclosures?
– No -- Asadi v. G.E. General (USA), L.L.C.,
720 ...
SOX Causation Standard
and Same-Decision
Affirmative Defense
• Feldman v. Law Enforcement Associates Corp.,
779 F. Supp. 2d 472 (E.D.N.C. March 10, 2011)
• Speegle v. Stone & Webster ...
SOX “Special Damages”
and Recent Jury Verdicts
SOX Special Damages
• $6M verdict in Zulfer v. Playboy
Enterprises, Inc. No. 2:12-cv-08263 (C.D.
Cal. Mar. 5, 2014)
• “Spe...
SOX Adverse Actions
• Merely “outing” a whistleblower is an
adverse action. Halliburton, Inc. v. Admin.
Review Bd., 771 F....
Whistleblower Reward and Retaliation Claims
Whistleblower Reward and Retaliation Claims
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Whistleblower Reward and Retaliation Claims

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Employee whistleblower reward and retaliation claims under a range of laws, such as the Sarbanes-Oxley and Dodd-Frank Acts, are on the rise. Whistleblowers have recently obtained record jury verdicts and record awards, including a $30 million bounty from the SEC and a $6 million verdict in a SOX retaliation case.

This program addresses the latest developments in whistleblower rewards and retaliation laws including:
• Implications of recent record whistleblower awards, including a $30 million SEC bounty;
• Scope of protected whistleblowing under the Sarbanes-Oxley and Dodd-Frank Acts
• Drawing the lines of SOX coverage one year post-Lawson;
• Recent decisions on causation and same-decision defense, including Feldman and Speegle;
• SEC enforcement of Dodd-Frank anti-retaliation provision and SEC prohibition against gag clauses;
• OSHA enforcement trends; and
• Tips for encouraging internal reporting.

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Whistleblower Reward and Retaliation Claims

  1. 1. Whistleblower Reward and Retaliation Claims: Current Developments Sean McKessy, Securities and Exchange Commission Steven J. Pearlman, Proskauer Rose LLP Anthony Rosa, Department of Labor, Occupational Safety & Health Jason Zuckerman, Zuckerman Law March 31, 2015
  2. 2. RECENT SEC WHISTLEBLOWER AWARDS
  3. 3. Recent SEC Whistleblower Awards • Impact of 9/22/14 $30M award • Circumstances under which persons with internal audit or compliance-related functions may be eligible for an award. • Impact of awards to a corporate officer and internal auditor • See OWB Annual Report at http://www.sec.gov/about/offices/owb/annual-report-2
  4. 4. Gag clauses in settlement agreements and confidentiality agreements
  5. 5. Gag Clauses From OWB Annual Report: •OWB has been working to identify employee confidentiality, severance, and other kinds of agreements that may interfere with an employee’s ability to report potential wrongdoing to the SEC. •Rule 21F-17(a) under the Exchange Act provides that “[n]o 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…with respect to such communications.” •The Office is actively working with Enforcement staff to identify and investigate practices in the use of confidentiality and other kinds of agreements that may violate this Commission rule.
  6. 6. • OSHA must approve all settlement agreements • OSHA must approve privateprivate (third-party) settlement agreements even if OSHA is not a party • OSHA will not approve a provision that implies OSHA or DOL is party to a “confidentiality” agreement • OSHA will not approve a “gag” order stopping the employee from talking to the Government • OSHA may approve a “waiver of future employment” under certain conditions
  7. 7. SEC ENFORCEMENT ACTION FOR WHISTLEBLOWER RETALIATION
  8. 8. SEC Enforcement Action for Whistleblower Retaliation • Section 21F(h)(1) of the Exchange Act prohibits employers from retaliating against individuals in the terms and conditions of their employment when they engage in whistleblowing activities. Rule 21F-2(b)(2) under the Exchange Act provides that Section 21F(h)(1) is enforceable in an action or proceeding brought by the Commission. • In June 2014, the SEC brought its first anti-retaliation case, charging hedge fund advisory firm Paradigm Capital Management, Inc. with retaliating against the head trader for his disclosures to the SEC about prohibited principal transactions. Paradigm and the firm’s owner, Candace King Weir, agreed to pay $2.2 million to settle the Commission’s charges, including for the firm’s violation of Section 21F(h)(1).
  9. 9. Practical implications of the recent U.S. Supreme Court's Lawson v. FMR LLC decision
  10. 10. SOX 806 – Who is Covered? • Company that registers a class of securities under Section 12 of the 1934 Securities and Exchange Act • Company that is required to file reports with the Securities Exchange Commission under Section 15(d) of the 1934 Act • A subsidiary or affiliate whose financial information is included in the consolidated financial statement of one of these
  11. 11. SOX 806 – Who is Covered? • A nationally recognized statistical rating organization • Any “officer, employee, contractor, subcontractor or agent of such company or nationally recognized statistical rating organization”
  12. 12. “Officer, Employee, Contractor, Subcontractor or Agent” • Lawson v. FMR, No. 12-3 (Mar. 4, 2014) – SOX protects employees of a public company's private contractors and subcontractors – Essentially same decision as ARB decision Spinner v. David Landau & Assocs. LLC, No. 10-111 (ARB May 31, 2012), but did not defer to ARB – Majority declined to adopt (but did not rule out) limiting principles – Gibney v. Evolution Mktg. Research, LLC, No. 14- 1913, 2014 WL 2611213 (E.D. Pa. June 11, 2014)
  13. 13. Impact of Lawson • What is the statute’s reach? – Employees of 5,000 public companies – Employees of 6 million private companies – Untold millions of employees of public company employees and officers • Impact on mutual fund industry and law and accounting firms, private businesses generally
  14. 14. Sarbanes-Oxley and Dodd-Frank Protected Conduct
  15. 15. Sarbanes-Oxley Protected Conduct • Sylvester v. Parexel Int’l, LLC, ARB 07- 123, 2011 WL 2165854 (May 25, 2011) – Protected conduct not limited to disclosures of shareholder fraud and C need not prove each element of fraud (scienter, materiality, etc.) – Disclosure about a potential violation protected – Abandons prior ARB’s Platone decision requiring that disclosure “definitively and specifically relate” to a violation of one of the categories of fraud or SEC rule violations
  16. 16. Sarbanes-Oxley Protected Conduct • Will federal courts adopt Sylvester? – Nielsen v. AECOM Tech. Corp., No. 13-235-cv (2d Cir. Aug. 8, 2014) – Weist v. Lynch, 710 F.3d 121 (3rd Cir. 2013) – Lockheed Martin Corp. v. Administrative Review Bd., 717 F.3d 1121 (10th Cir. 2013) – But see Riddle v. First Tennessee Bank, Nat. Ass’n., 497 Fed. App’x. 588 (6th Cir. 2012).
  17. 17. Dodd-Frank Act Protected Conduct • Protected activity if: – Provided information to the SEC ; – Provided assistance in any SEC; – Made required or protected disclosures under the Sarbanes-Oxley Act of 2002 . . .
  18. 18. Dodd-Frank Act Protected Conduct • Does it protect internal disclosures? – No -- Asadi v. G.E. General (USA), L.L.C., 720 F.3d 620 (5th Cir. 2013) – Yes – a number of district court have adopted a contrary position, including two opinions post-Asadi – Yes – SEC amicus briefs
  19. 19. SOX Causation Standard and Same-Decision Affirmative Defense
  20. 20. • Feldman v. Law Enforcement Associates Corp., 779 F. Supp. 2d 472 (E.D.N.C. March 10, 2011) • Speegle v. Stone & Webster Construction, ARB 13-074, 2005-ERA-006 (ARB Apr. 25, 2014) • Powers v. Union Pacific RR Co., ARB No. 13- 034, ALJ No. 2010-FRS-030 (March 20, 2015)
  21. 21. SOX “Special Damages” and Recent Jury Verdicts
  22. 22. SOX Special Damages • $6M verdict in Zulfer v. Playboy Enterprises, Inc. No. 2:12-cv-08263 (C.D. Cal. Mar. 5, 2014) • “Special damages” include emotional distress damages. Jones v. Southpeak Interactive Corp, — F.3d —-, 2015 WL 309626 (4th Cir. Jan. 26, 2015)
  23. 23. SOX Adverse Actions • Merely “outing” a whistleblower is an adverse action. Halliburton, Inc. v. Admin. Review Bd., 771 F.3d 254, 259 (5th Cir. 2014)

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