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Protecting Whistleblowers since 1977

The Best Way to Honor Whistleblowers on National Whistleblower Appreciation Day? Do More to Protect Them

Jordan Thomas, July 22, 2014

Editor's Note: The following guest blog post was written by noted attorney Jordan Thomas of Labaton Sucharow.
 

Last year, the Senate passed Resolution 202, which established National Whistleblower Appreciation Day to honor whistleblowers who bring misconduct to light and to educate the public about their whistleblowing rights. While this recognition is a welcome step, there is much more that can be done to encourage individuals to blow the whistle, and to protect those who do so. That’s certainly true in the area in which Labaton Sucharow practices: representing whistleblowers who report possible securities violations to the U.S. Securities and Exchange Commission (SEC) through the agency's Whistleblower Program.

Established as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”), the SEC Whistleblower Program was designed to improve the agency's ability to effectively detect, deter and prosecute violations of the federal securities laws by motivating more insiders with knowledge of such violations to come forward. The Program is based on three key incentives: (1) the ability to report possible misconduct anonymously (see 15 U.S.C. 78u-6(d)); (2) protections from, and remedies for, retaliation (see 15 U.S.C. 78u–6(h)(2)); and (3) the potential to obtain a monetary award where the “original information” voluntarily provided by the individual “leads to successful enforcement by the Commission,” resulting in the recovery of total sanctions exceeding $1 million (see 15 U.S.C. 78u–6(b)). These incentives led to more than 3200 whistleblower tips being submitted in fiscal year 2013 alone, with many more likely to come. Whistleblowers, in turn, have begun to receive significant monetary awards through the Program, including an award of $14 million (see Order Determining Whistleblower Award Claim, Exchange Act Release No. 70775, Oct. 30, 2013).

We believe the SEC Whistleblower Program is already a success – a view shared by top SEC officials who have called it “a tremendously effective force-multiplier.”* But, while the incentives offered by the SEC Whistleblower Program seem to be working, it’s also become clear that some companies are trying to use their own “counter-incentives” to dissuade employees from blowing the whistle.

The first tactic that we see again and again is retaliation. Retaliation against whistleblowers is, of course, an old problem: telling the uncomfortable truth about unlawful conduct has never been easy or popular. But, it has persisted even as public acceptance of whistleblowing has grown: according to an independent survey conducted in 2013 by the Ethics Resource Center, a shocking 21% of all employees who reported workplace misconduct experienced some form of retaliation.

The SEC is already taking important steps to combat retaliation, using the enhanced anti-retaliation provisions provided by Dodd-Frank. Just last month, the SEC brought its first retaliation charge against a company**, promising that “[we] will continue to aggressively take action whenever companies attempt to stifle, deter, or punish efforts to expose wrongful conduct.”*** Aggressive enforcement of Dodd-Frank’s anti-retaliation provisions is crucial, but not sufficient: we believe that the SEC should also engage in a rulemaking process to strengthen the existing protections available to whistleblowers who report misconduct both internally and externally, and to educate employees about their rights with respect to retaliation. For that reason, Labaton Sucharow, along with GAP and a broad coalition of more than 50 organizations have submitted a petition to the SEC. We are requesting a rulemaking process, along with a series of field hearings and the establishment of an Advisory Committee on whistleblower reporting and protection, which we hope other whistleblower advocates and concerned citizens will review and support.

The second tactic we see being employed with increasing frequency is the use of agreements that purport to bar an employee for participating in the SEC Whistleblower Program or from receiving a monetary award from the SEC. Similar provisions purport to require an employee to tell their company before talking to a government agency. The goal and effect of these various agreements is often the same: to silence employees who might have otherwise participated in the SEC Whistleblower Program. An SEC Rule (21F-17(a)) makes it clear that it’s a violation of law to use a confidentiality agreement or order to impede whistleblowing, and SEC officials have publicly warned companies and their lawyers that such agreements can lead to severe penalties. Given the profound threat that such agreements pose to the Program, though, we believe that this is another area in which even more action and advocacy is needed. Therefore, Labaton and GAP's rulemaking petition also urges the SEC to strengthen Rule 21F-17(a), including by providing concrete guidance regarding the types of “de facto gag clauses” that the rule prohibits.

The last several years have brought incredibly important and positive developments for whistleblowers and their advocates. But, despite the gains that have been achieved, we must remain vigilant to threats to whistleblowers. By continuing to take action to protect and advance the rights of whistleblowers, we can ensure that efforts like the SEC Whistleblower Program reach their full potential.

Jordan Thomas is chairman of the whistleblower representation practice at Labaton Sucharow and was a former assistant director in the enforcement division of the Securities and Exchange Commission.

A guest blogger, not GAP staff, authored the above post. If you are interested in authoring a guest post related to whistleblowing, please email Editor of The Whistleblogger & GAP Communications Director Dylan Blaylock at dylanb@whistleblower.org with your idea.

Article References

*Mary Jo White, Chair, U.S. Sec. & Exch. Comm’n, Remarks at the Securities Enforcement Forum (Oct. 9, 2013); see also Andrew Ceresney, Director of Enforcement, U.S. Sec. & Exch. Comm’n, Keynote Address at the International Conference on the Foreign Corrupt Practices Act (Nov. 19, 2013) (“Companies must keep in mind that the risk of not coming forward grows by the day as our whistleblower program continues to pick up steam. We are increasingly sourcing our own cases through whistleblower tips — which have come from individuals in nearly 70 different countries — and just last month, we made our largest-ever whistleblower award: over $14 million.”

**In the Matter of Paradigm Capital Management and Candace King Weir, Investment Advisers Act Release No. 3857 (June 16, 2014).

***Mary Jo White, Chair, U.S. Sec. & Exch. Comm’n, “A Few Things Directors Should Know About the SEC” at Stanford University Rock Center for Corporate Governance Twentieth Annual Stanford Directors’ College (June 23, 2014).