Whistleblowers Help CFTC Obtain Record Penalties for Commodities Fraud

On November 21, 2016, the CFTC released its annual enforcement results for FY 2016. According to the report, the agency filed 68 enforcement cases and … Continued

False Claims Act Whistleblower Retaliation Lawyers

If you have suffered retaliation for whistleblowing, call our leading False Claims Act whistleblower retaliation lawyers at 202-262-8959 to schedule a free, confidential consultation. Washingtonian magazine named two of our attorneys top whistleblower lawyers, and U.S. News and Best Lawyers® have named Zuckerman Law a Tier 1 firm in Litigation – Labor and Employment in the Washington DC metropolitan area.

Click here to read reviews from clients that we have represented in whistleblower rewards and whistleblower retaliation matters nationwide.

Does the False Claims Act protect whistleblowers against retaliation?

Who is protected under the False Claims Act whistleblower protection law?

FCA retaliation extends not only to employees and contractors, but also to partners. See U.S. ex rel. Kraemer v. United Dairies, L.L.P., 2019 WL 2233053 (D. Minn. May 23, 2019); Munson Hardisty, LLC v. Legacy Point Apartments, LLC, 359 F. Supp. 3d 546, 558 (E.D. Tenn. 2019) (LLC that was general contractor on defendant’s construction project was proper FCA plaintiff). In addition, the False Claims Act whistleblower protection law extends to physicians with staff privileges at a hospital. Powers v. Peoples Cmty. Hosp. Auth., 455 N.W.2d 371, 374 (Mich. Ct. App. 1990); El-Khalil v. Oakwood Healthcare, Inc., No. 19-12822, E.D. Mich. April 20, 2020.

What remedies or damages can a whistleblower recover under the whistleblower-protection provision of the False Claims Act?

A whistleblower who prevails in an anti-retaliation action under the FCA may recover:

reinstatement;
double back pay, plus interest;
special damages, which include litigation costs, reasonable attorney’s fees, emotional distress, and other noneconomic harm from the retaliation. 31 U.S.C. § 3730(h)(2).

Recently, a jury awarded more than $2.5 million to a whistleblower in an FCA retaliation case. As there is no cap on compensatory damages, FCA retaliation plaintiffs can potentially recover substantial damages for the retaliation that they have suffered.

And in 2020, two cardiologists formerly employed by Tenet Healthcare Corporation recovered $11 million in compensatory damages in an arbitration of claims of FCA retaliation, tortious interference with business expectancies, false light, and breach of contract.

False Claims Act Whistleblower Retaliation Damages and Remedies

What is protected whistleblowing or protected conduct under the False Claims Act Retaliation Provision?

The FCA protects:

“lawful acts . . . in furtherance of an action under [the FCA]”; and
“other efforts to stop 1 or more [FCA] violations.” 31 U.S.C. § 3730(h)(1).

Recent cases have interpreted this protected activity to include:

internal reporting of fraudulent activity to a supervisor;
steps taken in furtherance of a potential or actual qui tam action; or
efforts to remedy fraudulent activity or to stop an FCA violation.

Protection attaches regardless of whether the whistleblower mentions the words "fraud" or "illegal." The employer need only be put on notice that litigation is a "reasonable possibility." A reasonableness standard is inherently flexible and dependent on the circumstances; thus, "no magic words—such as illegal or unlawful—are necessary to place the employer on notice of protected activity." Jamison v. Fluor Fed. Sols., LLC, 2017 WL 3215289, at *9 (N.D. Tex. July 28, 2017).

An FCA retaliation claim does not require proof of a viable underlying FCA claim. The FCA retaliation provisions "do[] not require the plaintiff to have developed a winning qui tam action"; they "only require [] that the plaintiff engage in acts [made] in furtherance of an [FCA] action." Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176, 187 (3d Cir. 2001). And because the Supreme Court has held that the FCA “is intended to reach all types of fraud, without qualification, that might result in financial loss to the Government” and “reaches beyond ‘claims’ which might be legally enforced, to all fraudulent attempts to cause the Government to pay out sums of money,” the term “false or fraudulent claim” should be construed broadly. U.S. ex rel. Drescher v. Highmark, Inc., 305 F. Supp. 2d 451, 457 (E.D. Pa. 2004).

Does the False Claims Act anti-retaliation law protect efforts to stop a government contractor from defrauding the government?

Yes: the FCA protects whistleblowers who try to prevent one or more violations of the FCA, as long as they have an objectively reasonable belief that their employer is violating, or will soon violate, the FCA. Case law has clarified that efforts to stop an FCA violation are protected even if they are not meant to further a qui tam claim. For example, refusing to falsify documentation that will be submitted to Medicare is protected.

Similarly,a South Carolina district judge held that a relator engaged in protected conduct when she refused her employer's directive to obtain patient signatures and back-date the signatures, which relator perceived as an attempt to create fraudulent forms used to secure reimbursement from United States health insurance programs.

Is False Claims Act Whistleblower Protection Limited to Disclosures About the Whistleblower’s Employer?

As the Fourth Circuit held in O’Hara v. Nika Technologies, Inc., 2017— F.3d —-2017 WL 6542675 (4th Cir. Dec. 22, 2017), an FCA retaliation plaintiff need not demonstrate their protected disclosure concerns fraud committed by their employer:

The plain language of § 3730(h) reveals that the statute does not condition protection on the employment relationship between a whistleblower and the subject of his disclosures. Section 3730(h) protects a whistleblower from retaliation for “lawful acts done … in furtherance of an action under this section.” 31U.S.C. § 3730(h)(1). The phrase “an action under this section” refers to a lawsuit under §3730(b), which in turn states that “[a] person may bring a civil action for a violation of [the FCA].” Id. § 3730(b)(1). Therefore, § 3730(h) protects lawful acts in furtherance of an FCA action. This language indicates that protection under the statute depends on the type of conduct that the whistleblower discloses—i.e., a violation of the FCA—rather than the whistleblower’s relationship to the subject of his disclosures.

Does the False Claims Act retaliation law protect internal reporting to a government contractor or grantee?

Does the False Claims Act prohibit retaliation against an employee for the employee's refusal to participate in a fraudulent scheme?

Yes. As the Second Circuit held in Fabula v. American Medical Response, Inc., an employee's refusal to sign fraudulent reimbursement documentation constitutes protected whistleblowing. There the court notes that "[t]here is, at best, a hair's-breadth distinction between complaining internally that a practice is illegal under the FCA and advising a supervisor of one's refusal to engage in that illegal practice."

What types of disclosures or whistleblowing are protected under the False Claims Act whistleblower protection law?

Examples of protected conduct under the False Claims Act include:

Opposing double-billing of Medicare or Medicaid;
Reporting the sale of defective products to the government;
Filing or prosecuting a qui tam action;
Refusing to follow an order to upcode;
Assisting a qui tam relator, e.g., cooperating in an investigation;
Reporting the payment of kickbacks to refer patients for services that will be reimbursed by Medicare;
Oppose the fraudulent inducement of a contract;
Disclosing bid-rigging;
Reporting violations of good manufacturing practices; or
Trying to stop a provider from billing Medicaid for unnecessary medical services.

What acts of retaliation are prohibited by the False Claims Act anti-retaliation provision?

The False Claims Act prohibits an employer from discharging, demoting, suspending, threatening, harassing, or in any other manner discriminating against a whistleblower. Prohibited retaliation includes:

oral or written reprimands;
reassignment of duties;
constructive discharge; and
retaliatory lawsuits against whistleblowers.

A decision denying summary judgment in Baldwin v. Corecivic of Tennessee, LLC, No. 18-2390-JWB, 2020 WL 1952521 ( D. Kansas April 23, 2020) illustrates how harassment or a hostile work environment can be actionable retaliation under the FCA. The link between the alleged harassment and whistleblower's complaint to a federal agency was made explicit in remarks addressed to the workforce by management that raise a reasonable inference of a retaliatory motive.

[S]oon after filing his DOL complaint, the Warden called him into his office, asked him what he thought he was doing, accused him of being like a litigious Walmart shopper, and told him he had “big balls” for making the complaint, and that nothing was going to change. The Warden then expressed his dissatisfaction with Plaintiff at a company-wide meeting, where he told Plaintiff’s coworkers that the prison might be shut down if Plaintiff kept up his complaining. His coworkers began to call him names after this public dressing-down. Plaintiff was assigned to the allegedly undesirable position of patrolling the prison’s exterior perimeter, with no breaks during his 12-hour shift and no relief. The prison’s training manager, Sandra Elliott, instructed new employees to avoid Plaintiff because he was a trouble-maker and incorporated his photo into her introductory PowerPoint presentation. Plaintiff finds further evidence of intentional retaliation because Defendant’s managers failed to refer his various grievances, most of which stated that the complained-of mistreatment was in retribution for his DOL complaint, up the management chain to the company’s investigative team. Later, according to Plaintiff, his identity was leaked in connection with his confidential report of employee theft, resulting in a campaign of harassment presumably from his coworkers, who, among other things, let the air out of his car tires repeatedly, made prank phone calls to his home, threatened him, told him to stay away from the company holiday party for his own safety, put a dead mouse on his car windshield, and possibly even talked to an inmate about “shanking” him.

Is constructive discharge prohibited by the False Claims Act anti-retaliation law?

Yes. In Smith v. LHC Group, Inc., 2018 WL 1136072 (March 2, 2018), the Sixth Circuit held that where an employer ignores an employee's disclosures about fraud on the government and the employee is reasonably concerned that he may be charged with fraud by the government if he remains in the job, the employee's resignation is an actionable constructive discharge. In other words, a jury could find that the employer’s alleged fraudulent behavior plus the employee’s moral conscience and reasonable fear of being accused of participating in the employer’s fraud is enough to justify quitting. See also Byrd v. Nat'l Health Corp., No. 3:18-CV-00123, 2019 WL 403964 (E.D. Tenn. Jan. 31, 2019) and Bourne v. Provider Servs. Holdings, LLC, No. 1:12-CV-935, 2019 WL 2010596, at *6 (S.D. Ohio May 7, 2019).

What must a whistleblower prove to prevail in a False Claims Act whistleblower retaliation case?

A whistleblower must prove that:

the whistleblower engaged in protected activity;
the whistleblower’s employer took an adverse employment action against him or her; and
the adverse employment action was taken because of the whistleblower’s protected activity. 31 U.S.C. § 3730(h)(1).

Recently the Third Circuit held that FCA retaliation claims require proof of ‘but-for’ causation. DiFiore v. CSL Behring, LLC, 879 F.3d 71, 78 (3d Cir. 2018). Note, however, that "but for" caution is not tantamount to sole factor causation. See Burrage v. United States, 134 S. Ct. 881, 888-89 (2014) (an act is a “but-for” cause “[even if it] combines with other factors to produce the result, so long as the other factors alone would not have done so – if, so to speak, it was the straw that broke the camel’s back.”). In Bostock v. Clayton Cty., the Supreme Court clarified the burden of providing "but for" causation:

Title VII's "because of " test incorporates the "'simple'" and "traditional" standard of but-for causation. Nassar, 570 U. S., at 346, 360, 133 S. Ct. 2517, 186 L. Ed. 2d 503. That form of causation is established whenever a particular outcome would not have happened "but for" the purported cause. See Gross, 557 U. S., at 176, 129 S. Ct. 2343, 174 L. Ed. 2d 119. In other words, a but-for test directs us to change one thing at a time and see if the outcome changes. If it does, we have found a but-for cause.

590 U. S. __ (2020), slip op at *6.

At the pleading stage, the showing necessary to demonstrate the causal-link part of the prima facie case is not onerous; the plaintiff merely has to prove that the protected activity and the negative employment action are not completely unrelated. United States ex rel. Dyson v. Amerigroup Tex., Inc., 2005 WL 2467689, at *3 (S.D. Tex. Oct. 6, 2005).

Arguably, “but-for” causation is not significantly more onerous than “motivating factor” causation. For example, the Second Circuit held in a post-Nassar Title VII retaliation case that the “but-for causation standard does not alter the plaintiff’s ability to demonstrate causation at the prima facie stage on summary judgment or at trial indirectly through temporal proximity.” Zann Kwan v. Andalex Group, 737 F.3d 834 (2d Cir. 2013) (a three-week period from Kwan’s protected activity to the termination of her employment is sufficiently short to make a prima facie showing of causation indirectly through temporal proximity). "But for" causation requires a plaintiff to prove the adverse employment action would not have occurred but for the defendant’s consideration of a protected activity and "sole factor" causation requires a plaintiff to prove that the defendant’s consideration of a protected activity was the only cause of an adverse employment action. See McDonald v. Santa Fe Trail Transp. Co., 427 U.S. 273, 282 n. 10 (1976).

Alleging that the decision-maker reacted negatively to the whistleblower raising the issue of regulatory requirements and prohibited her from using the term "illegal" on the job can be sufficient to allege causation at the pleading stage. United States ex rel. Sibley v. University of Chicago Medical Center, 44 F.4th 646 (7th Cir. 2022).

How can an FCA retaliation plaintiff prove notice of protected conduct?

"Notice may be provided in a number of ways: for example, by informing the employer of `illegal activities' that would constitute fraud on the United States, . . . by warning the employer of regulatory noncompliance and false reporting of information to a government agency, . . . or by explicitly informing the employer of an FCA violation." McBride v. Peak Wellness Ctr., Inc., 688 F.3d 698, 704 (10th Cir. 2012).

Where an employee is hired to track compliance with regulatory requirements, some courts apply a presumption that he was merely acting in accordance with his employment obligations. In other words, a compliance employee must plead that he was not just doing his job. Some of the factors that courts consider in assessing notice include: whether the plaintiff’s complaints led to internal or external investigations; whether the plaintiff used the words, “illegal,” “unlawful,” “qui tam,” “fraud” or “fraudulent” in characterizing his concerns regarding the charges; whether the plaintiff’s “regular job duties” involved “investigating and reporting fraud” or, similarly, whether the plaintiff uncovered the alleged fraud through his performance of specifically “assigned task[s]”; and whether the plaintiff can rebut evidence that his supervisors had no knowledge of the protected activity. Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176, 189-92 (3d Cir. 2001).

Is there a heightened notice requirement for the whistleblower to prove that she went beyond her job duties when she blew the whistle?

Most courts reject a heightened notice requirement. "[T]he FCA no longer requires that conduct be in furtherance of an action under this section to be protected. Rather, the FCA protects any effort to stop 1 or more violations of this subsection. 31 U.S.C. 3730(h)(1). . . . If an employee does not need to take steps clearly in furtherance of a potential or actual qui tam action to engage in protected activity, the employee, even if charged with investigating potential fraud, also does not need to make clear their intentions of bringing or assisting in an FCA action, Yuhasz, 341 F.3d at 568, to satisfy the notice requirement. . . . By reporting [his/]her concerns directly to [his/her supervisor], [a] Plaintiff satisfie[s] the notice element of [his/]her . . . case." Mikhaeil v. Walgreens Inc., No. 2:13-CV-14107, 2015 WL 778179, at *9 (E.D. Mich. Feb. 24, 2015) (italics and emphasis added). See also Are "duty speech" disclosures protected under the False Claims Act?

What is the statute of limitations for a False Claims Act Whistleblower Retaliation Case?

Does the False Claims Act whistleblower retaliation law authorize individual liability?

With some exceptions, e.g., Weihua Huang v. Rector and Visitors of University of Virginia, 896 F. Supp. 2d 524, 548 n.16 (W.D. Va. 2012), most courts addressing this issue have held that § 3730(h) does not create a cause of action against supervisors sued in their individual capacities." Brach v. Conflict Kinetics Corp., 221 F. Supp. 3d 743, 748 (E.D. Va. 2016) (footnotes omitted) (citing Howell v. Town of Ball, 827 F.3d 515, 529-30 (5th Cir. 2016)). But arguably a False Claims Act retaliation claim can be brought against an individual as an alter ego of an employer corporation. United States ex rel. Brumfield v. Narco Freedom, Inc., No. 12 Civ. 3674 (JGK), 2018 WL 5817379, at *3 (S.D.N.Y. 2018) (citing cases).

Is a disclosure about fraudulent inducement of a contract protected under the FCA retaliation law?

Yes. FCA protected conduct includes “efforts to stop 1 or more violations’ of the Act,” which goes beyond disclosures concerning an actual exchange of money or property. See U.S. ex rel. Bahrani v. Conagra, 465 F.3d 1189, 1194 (10th Cir. 2006) (noting that the United States Supreme Court has given the FCA “an expansive reading, observing that it covers all fraudulent attempts to cause the government to pay out sums of money”) (internal citation omitted and quotation marks omitted). A company that provides false information in the course of competing for or seeking a government contract or grant arguably violates the FCA where the false statement has “a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.”

Does the False Claims Act Prohibit the Waiver or Release of False Claims Act Retaliation Claims?

The FCA does not preclude the waiver of a private retaliation claim. See Brown v. City of S. Burlington, 393 F.3d 337, 346 (2d Cir. 2004). In contrast, a qui tam action cannot be dismissed without the written consent of the AG. A written release of claims in a severance agreement can be enforced to bar a retaliation claim but the release might be unenforceable to dismiss a qui tam action.

Does the NDAA Whistleblower Protection Law Provide Additional Protection for Whistleblowers at Government Contractors and Grantees?

Yes, the NDAA whistleblower protection provisions provide a private right of action to an employee who suffers retaliation for disclosing information that the employee reasonably believes is evidence of:

gross mismanagement of a Federal contract or grant;
a gross waste of Federal funds;
an abuse of authority relating to a Federal contract or grant; or
a substantial and specific danger to public health or safety, or a violation of law, rule, or regulation related to a Federal contract.

To learn more about NDAA whistleblower protection, see our Practical Law Practice Note: Whistleblower Protections Under the National Defense Authorization Act.

Note that a recent district court ruling in Reed v. Keypoint Government Solutions, which might be erroneous, holds that an NDAA whistleblower retaliation claim must be brought in court within 2 years of the 210th day after the filing of the claim at the OIG.

The following table summarizes key distinctions between Section 3730(h) of the False Claims Act and Sections 827 and 828 of the NDAA:

	False Claims Act Whistleblower Protection	NDAA/Defense Contractor Whistleblower Protection Act
Coverage	Employee, contractor, or agent of federal contractor	Employee of a contractor, subcontractor grantee, or subgrantee, or a personal services contractor
Scope of Protected Conduct (protected whistleblowing)	Protects lawful acts done by the employee, contractor, agent, or associated others (1) in furtherance of an action under the FCA or (2) other efforts to stop 1 or more violations	Protects disclosures to employer or the government concerning: -Violation of law, rule, or regulation related to a federal contract -Gross mismanagement of a federal contract or grant -Gross waste of federal funds -Abuse of authority relating to a federal contract or grant -Substantial and specific danger to public health or safety
Administrative Exhaustion	No exhaustion requirement; file directly in federal court	Must file initially at OIG and after 210 days, can remove claim to federal court
Causation Standard	"But for" causation	Contributing factor causation
Damages	Double back pay, reinstatement, uncapped special damages (emotional distress and harm to reputation), attorney’s fees	Back pay, reinstatement, uncapped special damages, attorney’s fees
Statute of Limitations	3 years	3 years

Can a Government Contractor Bring a False Claims Act Whistleblower Retaliation Claim?

Yes, in certain circumstances. Recently a Tennessee federal judge held in Munson Hardisty LLC v. Legacy Pointe Apartments that the False Claims Act’s anti-retaliation provision protects a general contractor on a construction project funded by the U.S. Department of Housing and Urban Development (HUD) from retaliation for opposing fraudulent misrepresentations to HUD. Read more about the decision here.

Can a Government Contractor Obtain Dismissal of a False Claims Act Claim to Maintain the Confidential Nature of Classified Information?

A False Claims Act qui tam complaint should not include classified information and any relator in the possession of classified information should seek guidance to avoid disclosing such information. But where a qui tam action might implicate sensitive information, the contractor is not entitled to step into the shoes of the Government to assert the Government’s interest in maintaining the confidential nature of the information. Johnson et al v. Raytheon Company, No. 3:17-CV-1098-D, 2019 WL 6914967 N.D. Texas 12/19/2019.

Does the Layoff of a Whistleblower Immunize a Company from Liability Under the False Claims Act Retaliation Law?

A judge denied summary in an FCA retaliation case where the whistleblower was included in a layoff just one month after the FBI executed its search warrant with the whistleblower's assistance and the employer knew about the whistleblower's participation in the FBI's investigation. UNITED STATES EX REL. BARRICK v. PARKER-MIGLIORINI INTERNATIONAL, LLC, Case No. 2:12-cv-381-DB (D. Utah 2020). In particular, the employer knew that the whistleblower provided documents to the FBI and the whistleblower refused to participate in an interview with the company without his attorney present.

Does the False Claims Act Whistleblower Protection Law Preempt Common Law Wrongful Discharge Claims?

A number of courts have rejected the argument that state-wrongful-discharge claims are preempted by the False Claims Act. See, e.g., Brandon v. Anesthesia & Pain Mgmt. Assocs., Ltd., 277 F.3d 936, 945 (7th Cir. 2002) ("There is nothing in § 3730(h) to lead us to believe that Congress intended to preempt all state law retaliatory discharge claims based on allegations of fraud on the government."); Boone v. MountainMade Foundation, 857 F.Supp.2d 111, 113 n.2 (D.D.C. 2012); Glynn v. EDO Corp., 536 F.Supp.2d 595, 608-09 (D.Md. 2008); Hoefer v. Fluor Daniel, Inc., 92 F.Supp.2d 1055, 1059 (C.D.Cal. 2000); Palladino ex rel. United States v. VNA of S.N.J., Inc., 68 F.Supp.2d 455, 465-74 (D.N.J. 1999).

False Claims Act Whistleblower Retaliation Developments

False Claims Act Whistleblower Provision Protects Refusal to Violate False Claims Act

False Claims Act Retaliation Decision Underscores Broad Scope of FCA Whistleblower Protection

False Claims Act Whistleblower Obtains Favorable Rule on Double Back Pay

Does the False Claims Act protect whistleblowing in the course of the whistleblower’s job duties?

Third Circuit False Claims Act Retaliation Decision May Spur an Increase in NDAA Retaliation Claims

False Claims Act Retaliation Law Protects Efforts to Stop an FCA Violation

Decision in False Claims Act Whistleblower Retaliation Case Highlights Broad Scope of False Claims Act Protected Conduct

What whistleblowing is protected under the False Claims Act anti-retaliation provision?

Experienced False Claims Act Whistleblower Retaliation Lawyers

The experienced whistleblower attorneys at leading whistleblower law firm Zuckerman Law have substantial experience representing whistleblowers disclosing fraud and other wrongdoing at government contractors and grantees. In 2017, Washingtonian named two of our attorneys top whistleblower lawyers. To schedule a free confidential consultation, click here or call us at 202-262-8959.

Our experience includes:

Representing whistleblowers in NDAA retaliation claims before the Department of Defense, and Department of Homeland Security, Department of Justice Offices of Inspectors General.
Litigating False Claims Act retaliation cases.
Representing qui tam relators in False Claims Act cases.
Representing whistleblowers disclosing fraud on the government in Congressional investigations.
Training judges, senior Office of Inspector General officials, and federal law enforcement about whistleblower protections.

In addition, we have substantial experience representing whistleblowers under the Whistleblower Protection Act (WPA) and enforcing the WPA, the law that the NDAA whistleblower provisions are based upon. Both Bachman and Zuckerman served in senior positions at the Office of Special Counsel, where they oversaw investigations of whistleblower retaliation claims and whistleblower disclosures, and enforced the Whistleblower Protection Act.

Recently Washingtonian magazine named Jason Zuckerman and Eric Bachman top whistleblower lawyers.
U.S. News and Best Lawyers® have named Zuckerman Law a Tier 1 firm in Litigation – Labor and Employment in the Washington DC metropolitan area
Bachman and Zuckerman served on the Department of Labor’s Whistleblower Protection Advisory Committee, which makes recommendations to the Secretary of Labor to improve OSHA’s administration of federal whistleblower protections.
Matt Stock is a Certified Public Accountant, Certified Fraud Examiner and former KPMG external auditor. As an auditor, Mr. Stock developed an expertise in financial statement analysis, internal controls testing and fraud recognition, and he uses his auditing experience to help whistleblowers investigate and disclose complex financial frauds to the government and obtain damages for retaliation. He is lead author of SEC Whistleblower Program: Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award.
Eric Bachman has substantial experience litigating precedent-setting employment cases. His wins include a $100 million settlement in a disparate impact Title VII class action and a $16 million class action settlement against a major grocery chain. Having served as Special Litigation Counsel in the Civil Rights Division of the Department of Justice and as lead or co-counsel in numerous jury trials, Bachman is ready to go the distance to obtain the relief that you deserve.
Jason Zuckerman was recognized by Washingtonian magazine as a “Top Whistleblower Lawyer” in 2017, 2015, 2009, and 2007 selected by his peers to be included in The Best Lawyers in America® in the category of employment law (2011-2017), and selected by his peers to be listed in SuperLawyers(2012 and 2015-2017) in the category of labor and employment law. He is rated 10 out of 10 by Avvo, based largely on client reviews, and rated AV Preeminent® by Martindale-Hubbell based on peer reviews.

False Claims Act Whistleblower Retaliation Lawyer Client Reviews

The following client reviews are from whistleblowers at government contractors:

"I hired Mr. Zuckerman to pursue an action against a former employer that was attempting to use deceit in its pursuit of federal contracts, and which fired me for not participating in its schemes. Jason was not just very responsive, he was also engaging, spending a good deal of time and effort with me on the phone and by email learning the ins and outs of the case, discussing strategy, laying out alternatives, anticipating counter-arguments, etc, all with the highest integrity. In the end, Jason was able to negotiate a substantial settlement for me, and I believe the company learned not to fire employees for failing to participate in lying to the government. All in all, a very good outcome.

I have had the opportunity in my career to interact with numerous attorneys. Jason truly stands out. I wholeheartedly recommend him to anyone seeking a lawyer for wrongful termination and related employment issues."

"I was in a very difficult work situation dealing with the National Defense Authorization Act (NDAA) and whistleblower claims, and I needed legal representation. I was referred to Mr. Zuckerman by an attorney for a major corporation, who indicated that if they were in a similar situation, they would want Mr. Zuckerman on their side. From the get-go, Mr. Zuckerman listened to the details of my situation and believed in the merits of my case. He quickly dug into the details of my case and asked me thought-provoking questions, providing his legal expertise to help to build and shape my case. In doing so, he led me to see clearly how the employer wronged me. With his probing questions and knowledge of the relevant and applicable laws/statues, we filed a very strong NDAA and whistleblower claim, and combined with his tenacity, I was eventually able to settle with my employer and avoid a lengthy lawsuit. Mr. Zuckerman was very knowledgeable, professional, and always in my corner. He was always accessible, and always very responsive to my questions and needs. He accompanied me and represented me in official meetings, and he was always available to provide guidance, even emailing and responding to me very late in the evening. Mr. Zuckerman is competent, fair, ethical, and honest, and it was a pleasure working with him. I would not hesitate in recommending him to anyone who has experienced whistleblower retaliation."

Whistleblower Retaliation Laws Protecting Employees of Federal Contractors

Qui Tam Whistleblower Attorneys

Resources About False Claims Act Anti-Retaliation/Whistleblower Protection Provision

We have also written extensively about whistleblower protections for employees of government contractors and grantees, including the following articles and blog posts:

Yes, the False Claims Act prevents reprisal against an employee who has engaged in either of two areas of protected activity. One, did the employee take acts in furtherance of a qui tam action? The employee need not bring a qui tam action in the False Claims Act, but did they make an effort to try to collect evidence, or to perform an investigation of a possible violation of false claims act?
The other area is did the employee try to stop a violation of False Claims Act? Did they try to halt some fraud against the US government. The key is, the employee need not bring an action under the qui tam provisions, but if the employee has a reasonable belief that there is fraud on the US government and expresses that concern, that is enough for a claim under the False Claims Act, anti-retaliation provision.

Fraudulent Securities Offerings and Ponzi Scheme Whistleblower Lawyers

Securities Fraud Whistleblowers Reward Under the SEC Whistleblower Program, whistleblowers may receive a reward for providing the SEC with original information about securities fraud, including fraudulent securities offerings and Ponzi schemes. If the SEC uses a whistleblower’s information to bring a successful enforcement action, the whistleblower is eligible to receive between 10% to 30% of the collected monetary sanctions as an award.

Since 2012, the SEC has awarded nearly $1.3 billion to whistleblowers under the program. The largest SEC whistleblower awards to date are $114 million and $50 million. Our attorneys have substantial experience helping the SEC to halt more than $1 billion in ponzi schemes and fraudulent securities offerings.

If you have information that may qualify for an SEC whistleblower award, contact the Director of our SEC whistleblower practice at [email protected] or call our leading SEC whistleblower lawyers at (202) 930-5901 or (202) 262-8959.

All inquiries are confidential.

Recently the Association of Certified Fraud Examiners published a profile of SEC whistleblower lawyer Matt Stock’s success working with whistleblowers to fight fraud:

Read our tips for SEC whistleblowers and Forbes column about the success of the SEC whistleblower program.

According to a speech by former SEC Enforcement Director Andrew Ceresney, fraudulent securities offerings and Ponzi schemes are the types of securities fraud cases where whistleblowers’ assistance is especially valued. The Director noted that whistleblowers have helped the SEC identify false and misleading statements in offering memoranda and marketing materials, which enables the agency to act quickly and prevent investment frauds from luring more investors. The SEC has issued an investor alert about these fraudulent securities schemes.

Fraudulent Investment Offerings

whistleblower award for reporting fraud on investors The SEC targets investment offerings that contain false or misleading statements as well as fraudulent investment offerings, such as Ponzi or Ponzi-like schemes (see the SEC’s list of red flags that an offering may be a scam). This type of fraud continues to be a focus of SEC enforcement. According to the SEC Whistleblower Office’s 2020 Annual Report to Congress, offering fraud was the second most common complaint reported by whistleblowers (16%). The most common tip is related to corporate disclosures and financials (25%).

SEC Enforcement Actions Against False or Misleading Investment Offerings

On October 13, 2015, UBS agreed to pay $19.5 million to settle charges that it misled U.S. investors about its structured-notes trading strategy. According to the SEC’s press release, UBS falsely stated that the investment relied on a “transparent” and “systematic” currency-trading system that used “market prices” to calculate the financial instruments underlying the index. In reality, UBS failed to disclose hedging trades that reduced the index price by about 5%. As a result of the reduced index price, investors lost roughly $5.5 million.
On March 9, 2016, the SEC charged California’s largest agricultural water district with misleading investors about its financial condition as it issued a $77 million bond offering. The water district represented to investors that it met or exceeded a 1.25 debt service coverage ratio, which it was required to maintain pursuant to a previous bond offering. In order to meet this ratio, the water district used misleading accounting to record additional revenue by reclassifying funds from reserve accounts. The general manager of the water district jokingly referred to these transactions as “a little Enron accounting.” The actual coverage ratio was only .11, instead of the 1.25 reported to investors.
On August 15, 2018, the SEC filed an emergency action against Equitybuild, Inc. and Equitybuild Finance, LLC, charging them with operating a $135 million offering fraud involving real estate. According to the SEC’s complaint, the defendants raised these funds by falsely promising safe investments fully secured by income-producing real estate. Thereafter, the defendants took 15-30% of investors’ funds as undisclosed fees, hiding the fees by reporting inflated acquisition costs, and contrary to defendants’ representations, the real estate did not earn enough to pay the double-digit returns promised to investors. As a result, the defendants could only pay earlier investors by raising funds from unwitting new investors in a Ponzi-like fashion.

For more information about offering fraud, see the SEC’s Investor Alert: 10 Red Flags That an Unregistered Offering May Be a Scam.

Ponzi and Pyramid Schemes

ponzi scheme whistleblower bounty The SEC defines a Ponzi scheme as “an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.” The fraudsters are able to keep the scheme running only by attracting new money to make promised payments to earlier-stage investors, thereby creating the false appearance that investors are profiting from a legitimate business. The schemes tend to collapse when the fraudsters are unable to recruit new investors or when a large number of investors ask to cash out.

According to the SEC, in the classic Pyramid scheme, “participants attempt to make money solely by recruiting new participants into the program. The hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same.”

How to Spot a Ponzi Scheme

The SEC compiled a list of red flags that are common to most Ponzi schemes, which include:

high investment returns with little or no risk;
overly consistent returns;
unregistered investments;
unlicensed sellers;
secretive and/or complex strategies;
issues with paperwork; and
difficulty receiving payments.

How to Spot a Pyramid Scheme

For more information about pyramid schemes, see the SEC’s Investor Alert: Beware of Pyramid Schemes Posing as Multi-Level Marketing Programs.

SEC Enforcement Actions Against Ponzi and Pyramid Schemes

On March 10, 2016, the SEC charged an investment group and three top executives with hiding the rapidly deteriorating financial condition of the enterprise while raising more than $350 million from investors. In the scheme, the executives defrauded more than 1,500 investors into believing that they were investing in healthcare, education, and transportation when their money was really being used to keep the firm from going bankrupt. The operation showed some of the typical warning signs of a Ponzi scheme, such as promising high rates of return that ranged from 8.5% to 10%. In late 2015, the scheme unraveled after the firm could no longer meet scheduled redemptions.
On March 24, 2016, the SEC charged a real estate company with engaging in a $2.7 million Ponzi scheme that targeted elderly investors. Like many Ponzi schemes, the company “guaranteed income” to investors. This income was purportedly derived from the profits of a Pennsylvania real estate venture that bought, redeveloped, and sold properties. In reality, the company did not operate a real estate venture, and it used the investments for personal expenses, such as purchasing tickets for sporting events, paying college tuition, and maintaining personal credit cards.
On May 1, 2018, the SEC announced fraud charges against Arthur Adams and his company, Madison Timber Properties, for running an $85 million Ponzi scheme. According to the SEC’s complaint, Adams lied to investors by telling them their money would be used by his company to secure and harvest timber, and promised annual returns of 12-15%. Instead of using the investors’ money for timber, Adams used it to pay for his own personal expenses, to develop an unrelated real estate project, and to pay back early investors with later investors’ funds.
On June 19, 2018, the SEC obtained an asset freeze for a $102 million Ponzi scheme. According to the complaint, the defendants raised money from more than 600 investors across the United States. Then, instead of investing the funds as advertised, the fraudsters spent at least $20 million to enrich themselves, paid $38.5 million in Ponzi-like payments, and transferred much of the remainder in transactions that appear unrelated to their purported business.
On September 19, 2018, the SEC obtained an asset freeze for a $345 million Ponzi scheme. According to the SEC’s complaint, three defendants raised the $345 million from 230 investors across the United States by promising significant profits from the purchase and resale of consumer debt portfolios. Instead of using investors’ money as promised, the defendants allegedly used the funds to make Ponzi-like payments to earlier investors and fund their extravagant lifestyles, including the purchase of luxury homes for millions and 25 high-ends cars for approximately $10.2 million, among other things.

For more information about Ponzi schemes, see the SEC’s General Resources on Ponzi schemes here.

Dodd-Frank Whistleblower Program

sec whistleblower bounties Under the SEC Whistleblower Program, whistleblowers may be eligible for monetary awards when they voluntarily provide the SEC with original information about violations of federal securities laws that leads the SEC to bring a successful enforcement action that results in monetary sanctions exceeding $1,000,000.

Since 2012, the SEC Whistleblower Office has awarded nearly $1.3 billion in awards to whistleblowers.

For more information about the SEC Whistleblower Program, see our eBook Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award. Click below to hear SEC whistleblower lawyer Matt Stock’s tips for SEC whistleblowers:

SEC Whistleblower Bounties

Whistleblowers are eligible to receive between 10% and 30% of the monetary sanctions collected.

Corporate Whistleblower Protection

SEC whistleblower protection law The SEC Whistleblower Program also protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity. Furthermore, the Dodd-Frank Act protects whistleblowers from retaliation by their employers for reporting violations of securities laws. To learn more about corporate whistleblower rights and protections, download our free guide Sarbanes-Oxley Whistleblower Protection: Robust Protection for Corporate Whistleblowers.

SEC Whistleblower Attorneys

For more information about whistleblower rewards and bounties, contact the SEC whistleblower lawyers at Zuckerman Law at 202-262-8959.

U.S. News and Best Lawyers® have named Zuckerman Law a Tier 1 firm in Litigation – Labor and Employment in the Washington DC metropolitan area in the 2020 edition “Best Law Firms.” In 2017, Washingtonian magazine named two of our attorneys top whistleblower lawyers.

SEC Whistleblower Process

Additional Resources

For more information about the SEC Whistleblower Program, see the following SEC posts:

SEC v. Merrill et al., case number 1:18-cv-02844,
SEC Litigation Release: SEC v. Tropikgadget FZE,
SEC Press Release: SEC v CKB168,
SEC Press Release: SEC v Rex Venture Group,
FTC Blog: Pyramids of Fortune?
FTC Article: Multilevel Marketing
SEC Investor Alert: Social Media and Investing – Avoiding Fraud,
SEC Investor Bulletin: Affinity Fraud,
Investor.gov Article: Avoiding Fraud, and
SEC Interpretative Release: Multi-level Distributorships & Pyramid Sales Plans.

whistleblower_lawyers_012017_infographic

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CFTC Whistleblower Reward Lawyers

The CFTC Whistleblower Reward Program provides whistleblowers with a strong monetary incentive, as well as anti-retaliation protections, for reporting wrongdoing to the CFTC. This includes violations or fraud in connection with:

Commodity futures;
Commodity options;
Swap trading markets;
Derivatives; and
Foreign corrupt practices.

On October 21, 2021, the CFTC awarded a whistleblower $200 million for providing information that led the CFTC to evidence of wrongdoing concerning the manipulation of financial benchmarks used by global banks. Approximately 65% of whistleblower cases filed at the CFTC involve charges of commodities fraud, market manipulation schemes, and spoofing. Whistleblower tips to CFTC have helped drive record-level enforcement activity.

Since 2014, the CFTC has issued more than $325 million in awards to whistleblowers. The largest CFTC whistleblower awards to date are $200 million, $45 million, $30 million, and $10 million. Whistleblower disclosures have enabled the CFTC to bring successful enforcement actions against wrongdoers with orders for more than $3 billion in monetary relief. See our recent post How to Report Swaps Manipulation or Swaps Reporting Violations and Qualify for a CFTC Whistleblower Award.

Call our CFTC whistleblower lawyers today at 202-930-5901 or contact us here to find out if you are eligible for a CFTC whistleblower award. A delay in reporting commodities fraud can potentially disqualify a whistleblower from recovering an award or can lower a whistleblower award, so call us today for a free consultation. We represent CFTC whistleblowers concerning a wide variety of market manipulation schemes.

Our experienced CFTC whistleblower lawyers are frequently quoted in the media about

whistleblower reward programs. Recently, the Wall Street Journal quoted Jason Zuckerman in an article titled Senate Passes Bill to Fund CFTC Whistleblower Program, and quoted Matthew Stock, Director of our Whistleblower Rewards Practice, in an article titled CFTC Whistleblower Tips and Awards Fall After Record 2018.

Recently the Association of Certified Fraud Examiners published a profile of Matt Stock’s success working with whistleblowers to fight fraud:

CFTC Whistleblower Reward Program

SEC whistleblower awards Under the CFTC Whistleblower Reward Program, the CFTC will issue rewards to whistleblowers who provide original information that leads to CFTC enforcement actions with total civil penalties in excess of $1 million (see how the CFTC calculates monetary sanctions). A whistleblower may receive an award of between 10% and 30% of the total monetary sanctions collected.

Original information “leads to” a successful enforcement action if either:

The original information caused the staff to open an investigation, reopen an investigation, or inquire into different conduct as part of a current investigation, and the Commission brought a successful action based in whole or in part on conduct that was the subject of the original information; or
The conduct was already under examination or investigation, and the original information significantly contributed to the success of the action.

In determining a reward percentage, the CFTC considers the particular facts and circumstances of each case. For example, positive factors may include the significance of the information, the level of assistance provided by the whistleblower and the whistleblower’s attorney, and the law enforcement interests at stake.

Awards are paid from the CFTC Customer Protection Fund, which is financed through monetary collected by the CFTC in any covered judicial or administrative action that is not otherwise distributed, or ordered to be distributed, to victims of a violation of the CEA underlying such action.

Anonymous Whistleblowing to the CFTC

If represented by counsel, a whistleblower may submit a tip anonymously to the CFTC. In certain circumstances, a whistleblower may remain anonymous, even to the CFTC, until an award determination. However, even at the time of a reward, a whistleblower’s identity is not made available to the public.

The confidentiality protections of the CEA require the CFTC not to disclose information that “could reasonably be expected to reveal the identity of the whistleblower.” According to a recent report of the CFTC Whistleblower Office, the Office takes steps to protect whistleblower confidentiality. For example, in a recent fiscal year the Office considered 267 requests to produce documents from the investigation and litigation files of the Enforcement Division and found 16 requests to implicate whistleblower-identifying information. The Office worked with the Enforcement Division to remove whistleblower-identifying information or otherwise take steps to preserve whistleblower confidentiality.

CFTC Whistleblower Awards

The table below identifies some of the largest CFTC whistleblowers awards:

Whistleblower Award	Date	Basis for Whistleblower Award
$200 million	October 21, 2021	October 21, 2021, the CFTC "announced an award of nearly $200 million to a whistleblower whose specific, credible, and timely original information significantly contributed to an already open investigation and led to a successful enforcement action, as well as to the success of two related actions, by a U.S. federal regulator and a foreign regulator." For more information about the award, see our article here.
$45 million	August 2, 2018	On August 2, 2018, the CFTC announced a $45 million award to multiple whistleblowers. Reports indicate the award was related to ISDAFIX manipulation enforcement actions.
$30 million	July 12, 2018	On July 12, 2018, the CFTC announced its largest-ever whistleblower award given to an individual. The whistleblower exposed that JP Morgan did not properly disclose conflicts of interests to clients. Find the order here.
$10 million	March 28, 2016	On April 4, 2016, the CFTC announced a $10 million award given to an individual. The whistleblower provided “valuable information” regarding violations of the Commodity Exchange Act. Find the order here.
$7 million	September 27, 2019	On September 27, 2019, the CFTC issued a $7 million award to a whistleblower. CFTC Director of Enforcement James McDonald stated in the Press Release: “Forty percent of our investigations now involve whistleblowers. We expect that number to increase as the CFTC continues to expand its whistleblower program.” Find the order here.
$6 million	June 9, 2020	On June 9, 2020, the CFTC issued a $6 million award to a whistleblower who voluntarily provided original information that led the CFTC to bring a successful enforcement action. According to the Press Release announcing the award, the CFTC opened its investigation upon receiving the whistleblower’s information, which was specific, credible and timely.
$2.5 million	June 24, 2019	On July 24, 2019, the CFTC issued a $2.5 million CFTC whistleblower award to an individual. The award was reduced because of the whistleblower’s delay in reporting. Director McDonald said the delay was “unreasonable” and the whistleblower could have received a larger award had this person not waited. Find the order here.
$2 million	July 1, 2019	On July 1, 2019, the CFTC issued a $2 million CFTC whistleblower award to two whistleblowers. The whistleblowers provided multiple interviews and documents that were “highly informative” and provided the agency “with significant information” that prompted the CFTC to open an investigation. The whistleblowers also reported the violations to another organization that conducted a separate investigation and shared its findings with the CFTC. Find the order here.
$2 million	March 4, 2019	On March 4, 2019, the CFTC announced an award of over $2 million to a whistleblower. The whistleblower conducted an "independent analysis" of market data, which aided greatly in the CFTC’s investigation. The whistleblower was not an insider. The order is here.
$1.5 million	May 6, 2019	On May 6, 2019, the CFTC announced a $1.5 million award to a whistleblower who tried to report it internally first. The CFTC granted the reward to the whistleblower for both a CFTC action and a related action brought by another federal regulator. Find the order here.
$290,000	September 29, 2015	On September 29, 2015, the CFTC announced an award of $290,000 to a whistleblower. Two applicants applied for the award, but the CFTC only awarded one of the whistleblowers because the “the information provided by the second applicant did not lead to a successful enforcement . . . action.”
$240,000	May 20, 2014	On May 20, 2014, the CFTC announced its first-ever whistleblower award of $240,000. The then-acting director of the CFTC reported that the whistleblower provided “specific, timely and credible information” that led to a successful investigation.

Protections Against Whistleblower Retaliation

SEC whistleblower protection Whistleblowers are also afforded substantial protection against retaliation. Specifically, an employer may not “discharge, demote, suspend, threaten, harass, directly or indirectly, or in any manner discriminates against, a whistleblower” for legally reporting wrongdoing. In the event that an employer retaliates against a whistleblower, the law provides for substantial relief. This may include reinstatement, back pay, and compensation for related expenses such as litigation costs and reasonable attorneys’ fees.

A whistleblower is entitled to this protection even if they do not receive a reward. The anti-retaliation provision applies to any whistleblower who possesses “a reasonable belief that the information the whistleblower is providing relates to a possible violation of the Commodity Exchange Act (CEA), or the rules or regulations thereunder, that has occurred, is ongoing, or is about to occur.”

The CFTC can take enforcement action against an employer that “retaliates against a whistleblower by discharge, demotion, suspension, direct or indirect threats or harassment, or any other manner of discrimination” because the whistleblower provided “information to the Commission after reporting the information through internal whistleblower, legal or compliance procedures.” 17 C.F.R. 165.20(b).

If you have suffered whistleblower retaliation, call the whistleblower retaliation lawyers at our firm at 202-262-8959.

CFTC Prohibits “Gag Clauses” in Confidentiality and Employment Agreements

SEC whistleblower rights and gag provisions The rules implementing the CFTC whistleblower program prohibit employers from taking steps to impede whistleblowers from communicating with the CFTC staff. In particular, 17 C.F.R. § 165.19(b) provides:

No person may take any action to impede an individual from communicating directly with the Commission’s staff about a possible violation of the Commodity Exchange Act, including by enforcing, or threatening to enforce, a confidentiality agreement or predispute arbitration agreement with respect to such communications.

This prohibition is critical to the success of any whistleblower program because companies often use overly broad confidentiality agreements to silence and punish whistleblowers.

Experienced CFTC Whistleblower Lawyers

best whistleblower lawyers representing whistleblowers at the SEC

The whistleblower lawyers at Zuckerman Law have substantial experience representing corporate whistleblowers in whistle blower protection and whistleblower rewards cases.

Our team of attorneys includes a licensed Certified Public Accountant and Certified Fraud Examiner whose experience working at a large audit firm enhances the firm’s to investigate complex fraud schemes and prepare effective submissions to the CFTC. For a free, confidential consultation, click here or call us at 202-262-8959.

Violations of the CEA that Qualify for a CFTC Whistleblower Award

The largest CFTC whistleblower awards to date are $200 million, $45 million, and $30 million. The main types of violations that may qualify for a CFTC whistleblower award include:

Spoofing

Spoofing is a form of market manipulation where traders artificially inflate the supply and demand of an asset to increase profits. Traders engaged in spoofing typically place a large number of orders to buy or sell a certain stock or asset without the intent to follow through on the orders. This deceptive trading practice leads other market participants to wrongly believe that there is pressure to act on that asset and “spoofs” other participants to place orders at artificially altered prices.

Spoofing affects prices because the artificial increase in activity on either the buy or sell side of an asset creates the perception that there is a shift in the number of investors wanting to buy or sell. Spoofers place false bids or offers with the intent to cancel before executing so that they can then follow-through on genuine orders at a more favorable price. Often, spoofers use automated trading and algorithms to achieve their goals. According to a CFTC alert on spoofing related to CEA violations, the CFTC is concerned with conduct such as:

manual and automated trading schemes that place and quickly cancel bids and offers in futures contracts in order to benefit other orders and/or positions;
orders being quickly placed and canceled at or near the best bid or offer, especially if opposite-side orders are filled;
multiple orders of the same size repeatedly and simultaneously being placed and canceled; and
any scheme designed to cause prices to artificially move.

Examples of CFTC spoofing enforcement actions include:

In November 2019, the CFTC imposed $67.4 million in sanctions against Tower Research Capital LLC, a proprietary trading firm, arising from a manipulative and deceptive scheme. On thousands of occasions, three former Tower traders, placed orders to buy or sell futures contracts with the intent to cancel those orders prior to execution. The traders often used an order splitter to enter several smaller, randomly-sized orders in an attempt to obscure their scheme from other market participants. According to a CFTC press release, “[t]he traders engaged in this scheme to induce other market participants to trade against their genuine orders—by intentionally sending a false signal to the market that they wanted to buy or sell the number of contracts specified in the spoof orders and creating a false impression of supply or demand—so that the genuine orders would fill sooner, at better prices, or in larger quantities than they otherwise would.”
In August 2021, a federal jury convicted Edward Bases and John Pacilio, two former Merrill Lynch traders, for engaging in a multi-year fraud scheme to manipulate the precious metals market. According to a press release announcing the action, the two traders fraudulently pushed market prices up or down by routinely placing large “spoof” orders in the precious metals futures markets that they did not intend to fill. After manipulating the market, Bases and Pacilio executed trades at favorable prices for their own gain, and to the detriment of other traders. The DOJ’s Indictment detailed how Bases and Pacilio discussed their intent to “push” the market through spoofing in electronic chat conversations.
In September 2020, JPMorgan Chase & Co. agreed to pay disgorgement of $920 million in parallel actions brought by the CFTC, DOJ, and the SEC engaging in manipulative trading of U.S. Treasury securities. According to the SEC’s order, certain traders on J.P. Morgan Securities’ Treasuries trading desk placed genuine orders to buy or sell a particular Treasury security, while nearly simultaneously placing spoofing orders, which the traders did not intend to execute, for the same series of Treasury security on the opposite side of the market. The spoofing orders were intended to create a false appearance of buy or sell interest, which would induce other market participants to trade against the genuine orders at prices that were more favorable to J.P. Morgan Securities than J.P. Morgan Securities otherwise would have been able to obtain.

Corrupt Practices

Foreign Bribery and FCPA Whistleblower Attorneys Although the SEC and DOJ are responsible for enforcing the FCPA, the CFTC can take enforcement actions to combat violations of the CEA connected to corrupt practices, including bribes or kickbacks paid to improperly influence government officials in connection with regulated activities such as trading, advising, or dealing in swaps or derivatives. As explained in a March 6, 2019 CFTC Enforcement Advisory and public remarks by Director of Enforcement James M. McDonald at the ABA’s National Institute on White Collar Crime, the CFTC’s anti-fraud authority permits it to police foreign bribes where violations of the CEA carried out through foreign corrupt practices. McDonald explained:

Companies and individuals engaging in foreign corrupt practices should recognize that this sort of misconduct might constitute fraud, manipulation, false reporting, or a number of other types of violations under the CEA, and thus be subject to enforcement actions brought by the CFTC. Bribes might be employed, for example, to secure business in connection with regulated activities like trading, advising, or dealing in swaps or derivatives. Corrupt practices might be used to manipulate benchmarks that serve as the basis for related derivatives contracts. Prices that are the product of corruption might be falsely reported to benchmarks. Or corrupt practices in any number of forms might alter the prices in commodity markets that drive U.S. derivatives prices. We currently have open investigations involving similar conduct.

In December 2020, the CFTC exercised that authority by imposing a $95 million civil penalty to settle charges against Vitol Inc, for manipulative and deceptive conduct involving foreign corruption and physical and derivatives trading in the U.S. and global oil market. The CFTC found that “Vitol committed fraud by making corrupt payments (e.g., bribes and kickbacks) to employees and agents of certain state-owned entities (SOEs) in Brazil, Ecuador, and Mexico to obtain preferential treatment and access to trades with the SOEs to the detriment of the SOEs and other market participants.” The corrupt payments were concealed by funneling them through offshore bank accounts or to shell entities, and at times, issuing deceptive invoices for purported “market intelligence” or “sell support.” The objective of these illicit payments was to secure unlawful competitive advantages in trading physical oil products and derivatives.

Trading on Material Nonpublic Information

whistleblower retaliation lawyers The Dodd-Frank Act expanded the CFTC’s authority to police misappropriation of confidential information and insider trading in commodities markets. Similar to the SEC’s Rule 10b-5, CFTC Rule 180.1 prohibits manipulative and deceptive devices, i.e., fraud and fraud-based manipulative devices and contrivances employed intentionally or recklessly, regardless of whether the conduct in question was intended to create or did create an artificial price.

The fraud or manipulation must be in connection with any swap, or contract of sale of any commodity in interstate commerce, or contract for future delivery on or subject to the rules of any registered entity. Examples of prohibited trading include:

trading on material nonpublic information (MNPI) that was obtained by fraud or deception;
trading on market-moving information that the source had a duty to protect;
brokers front running customer orders or taking the other side of any customer order without consent; and
improperly disclosing MNPI or using MNPI provided by a counterparty without the counterparty’s consent.

An example of the CFTC enforcing its prohibition against the misappropriation of MNPI is a September 29, 2016 enforcement taken against Jon P. Ruggles for engaging in fraudulent, fictitious, and non-competitive trades in crude oil and heating oil futures and options and RBOB gasoline futures on the NYMEX. The CFTC’s order settling the charges requires Ruggles to disgorge ill-gotten gains totaling $3,501,306, imposes a civil monetary penalty of $1.75 million, and permanently bans him from trading and registering with the CFTC. Ruggles, who was responsible for developing his former employer’s fuel hedging strategies and for executing the employer’s trades in certain NYMEX products, misappropriated the employer’s trading information for his own benefit in personal accounts that he controlled.

Benchmark Rates Manipulation

In a benchmark-rate-manipulation scheme, individuals seek to increase or decrease impartial global reference rates for their own financial gain. This misconduct is typically associated with the U.S. Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX), benchmark-swap rates, LIBOR, Euribor, and other foreign interest-rate benchmarks.

On May 25, 2016, the CFTC ordered Citibank to pay $250 million for attempted manipulation and false reporting of USD ISDAFIX benchmark-swap rates. According to a CFTC press release, Citibank traders “attempted to manipulate and made false reports concerning the USD ISDAFIX by skewing the Bank’s USD ISDAFIX submissions . . . in order to benefit the Bank’s trading positions at the expense of its derivatives counterparties.” The CFTC uncovered numerous instances of Citibank’s USD ISDAFIX misconduct through the bank’s exotic traders’ instant messages. In March 2008, one of Citibank’s exotics traders stated in separate instant messages to other market participants that “[I] moved the screen btw” and “[I] moved the screen to 183 on 2s10s…[One of Citibank’s swaps traders] is pretty good at it,” and “[I] push the 2s10s swap on the screen to 183.4, very proud of myself.”

How the CFTC Determines Whistleblower Awards

According to the CFTC’s Enforcement Manual, “[w]hen the CFTC obtains a judicial or administrative order that—by itself or together with judgments or orders in related CFTC enforcement actions or Related Actions brought by certain other entities—imposes monetary sanctions exceeding $1,000,000, then the order becomes a covered judicial or administrative action upon which the CFTC may pay out whistleblower awards. The WBO will then post a Notice of Covered Action, and whistleblowers may begin applying for awards.”

A recent CFTC order awarding $10 million to a CFTC whistleblower clarifies that the CFTC employs a flexible approach to weighing the positive and negative award criteria and no one factor is dispositive:

The analytical framework in the Rules provides general principles without mandating a particular result. The criteria for determining the amount of an award in Rule 165.9, 17 C.F.R. § 165.9, are not listed in any order of importance and are not assigned relative importance. Rule 165.9(b) provides a list of factors that may increase the award amount, and Rule 165.9(c) provides a list of factors that may decrease the award amount. However, the Rules do not specify how much any factor in Rule 165.9(b) or (c) should increase or decrease the award percentage. Not satisfying any one of the positive factors does not mean that the award percentage must be less than 30%. and the converse is true. Not having any one of the negative factors does not mean the award percentage must be greater than 10%. These principles serve to prevent a vital whistleblower from being penalized for not satisfying the positive factors. For example, a whistleblower who provides the Commission with significant information and substantial assistance such as testifying at trial and producing documents containing direct evidence of violations could receive 30% even if the whistleblower did not participate in any internal compliance systems. In contrast, in order to prevent a windfall, a whistleblower who provides some useful but partial information and limited assistance to the Commission may receive 10% even if none of the negative factors were present.

Key Rules Governing CFTC Whistleblower Award Eligibility

A whistleblower may be eligible for an award by providing the Commission original information without being the original source of the information. [Rule 165.5(b)]

A whistleblower retains eligibility for an award based on information provided by the whistleblower to certain specified persons or authorities, now to include foreign futures authorities, prior to the time that the whistleblower provided the information to the Commission. [Rule 165.2(i)(2); Rule 165.2(l)(2)]
Where a whistleblower first provides information to certain specified persons or authorities before reporting to the Commission, the timeframe for a whistleblower to submit a Form TCR (Tip, Complaint or Referral) to the Commission has been extended from 120 days to 180 days. If a whistleblower submits a Form TCR within this 180-day period after reporting to the other person or authority, the Commission will consider the whistleblower to have provided information to the Commission as of the date of the whistleblower’s original disclosure to the other person or authority. [Rule 165.2(i)(3); Rule 165.2(l)(2)]
The Commission may waive its procedural requirements based upon a showing of extraordinary circumstances. [Rule 165.5(c)]

Resources About CFTC Whistleblower Reward Program

CFTC Whistleblower Statute, 7 U.S.C. § 26

CFTC Whistleblower Rules, 17 C.F.R. pt. 165

Dodd-Frank Act Provision Creating CFTC Whistleblower Reward Program

§26. Commodity whistleblower incentives and protection

(a) Definitions

In this section:

(1) Covered judicial or administrative action

The term “covered judicial or administrative action” means any judicial or administrative action brought by the Commission under this chapter that results in monetary sanctions exceeding $1,000,000.

(2) Fund

The term “Fund” means the Commodity Futures Trading Commission Customer Protection Fund established under subsection (g).

(3) Monetary sanctions

The term “monetary sanctions”, when used with respect to any judicial or administrative action means—(A) any monies, including penalties, disgorgement, restitution, and interest ordered to be paid; and(B) any monies deposited into a disgorgement fund or other fund pursuant to section 7246(b) of title 15, as a result of such action or any settlement of such action.

(4) Original information

The term “original information” means information that—(A) is derived from the independent knowledge or analysis of a whistleblower;(B) is not known to the Commission from any other source, unless the whistleblower is the original source of the information; and(C) is not exclusively derived from an allegation made in a judicial or administrative hearing, in a governmental report, hearing, audit, or investigation, or from the news media, unless the whistleblower is a source of the information.

(5) Related action

The term “related action”, when used with respect to any judicial or administrative action brought by the Commission under this chapter, means any judicial or administrative action brought by an entity described in subclauses (I) through (VI) of subsection (h)(2)(C) that is based upon the original information provided by a whistleblower pursuant to subsection (a) that led to the successful enforcement of the Commission action.

(6) Successful resolution

The term “successful resolution”, when used with respect to any judicial or administrative action brought by the Commission under this chapter, includes any settlement of such action.

(7) Whistleblower

The term “whistleblower” means any individual, or 2 or more individuals acting jointly, who provides information relating to a violation of this chapter to the Commission, in a manner established by rule or regulation by the Commission.

(b) Awards

(1) In general

In any covered judicial or administrative action, or related action, the Commission, under regulations prescribed by the Commission and subject to subsection (c), shall pay an award or awards to 1 or more whistleblowers who voluntarily provided original information to the Commission that led to the successful enforcement of the covered judicial or administrative action, or related action, in an aggregate amount equal to—(A) not less than 10 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions; and(B) not more than 30 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions.

(2) Payment of awards

Any amount paid under paragraph (1) shall be paid from the Fund.

(1) Determination of amount of award

(A) Discretion

The determination of the amount of an award made under subsection (b) shall be in the discretion of the Commission.

(B) Criteria

In determining the amount of an award made under subsection (b), the Commission—(i) shall take into consideration—(I) the significance of the information provided by the whistleblower to the success of the covered judicial or administrative action;(II) the degree of assistance provided by the whistleblower and any legal representative of the whistleblower in a covered judicial or administrative action;(III) the programmatic interest of the Commission in deterring violations of the ¹ chapter (including regulations under the ¹ chapter) by making awards to whistleblowers who provide information that leads to the successful enforcement of such laws; and(IV) such additional relevant factors as the Commission may establish by rule or regulation; and

(ii) shall not take into consideration the balance of the Fund.

(2) Denial of award

No award under subsection (b) shall be made—(A) to any whistleblower who is, or was at the time the whistleblower acquired the original information submitted to the Commission, a member, officer, or employee of—(i) a appropriate regulatory agency;(ii) the Department of Justice;(iii) a registered entity;(iv) a registered futures association;(v) a self-regulatory organization as defined in section 78c(a) of title 15; or(vi) a law enforcement organization;(B) to any whistleblower who is convicted of a criminal violation related to the judicial or administrative action for which the whistleblower otherwise could receive an award under this section;(C) to any whistleblower who submits information to the Commission that is based on the facts underlying the covered action submitted previously by another whistleblower;(D) to any whistleblower who fails to submit information to the Commission in such form as the Commission may, by rule or regulation, require.

(d) Representation

(1) Permitted representation

Any whistleblower who makes a claim for an award under subsection (b) may be represented by counsel.

(2) Required representation

(A) In general

Any whistleblower who anonymously makes a claim for an award under subsection (b) shall be represented by counsel if the whistleblower submits the information upon which the claim is based.

(B) Disclosure of identity

Prior to the payment of an award, a whistleblower shall disclose the identity of the whistleblower and provide such other information as the Commission may require, directly or through counsel for the whistleblower.

(e) No contract necessary

No contract with the Commission is necessary for any whistleblower to receive an award under subsection (b), unless otherwise required by the Commission, by rule or regulation.

(f) Appeals

(1) In general

Any determination made under this section, including whether, to whom, or in what amount to make awards, shall be in the discretion of the Commission.

(2) Appeals

Any determination described in paragraph (1) may be appealed to the appropriate court of appeals of the United States not more than 30 days after the determination is issued by the Commission.

(3) Review

The court shall review the determination made by the Commission in accordance with section 7064 ² of title 5.

(g) Commodity Futures Trading Commission Customer Protection Fund

(1) Establishment

There is established in the Treasury of the United States a revolving fund to be known as the “Commodity Futures Trading Commission Customer Protection Fund”.

(2) Use of Fund

The Fund shall be available to the Commission, without further appropriation or fiscal year limitation, for—(A) the payment of awards to whistleblowers as provided in subsection (a); and(B) the funding of customer education initiatives designed to help customers protect themselves against fraud or other violations of this chapter, or the rules and regulations thereunder.

(3) Deposits and credits

There shall be deposited into or credited to the Fund:

(A) Monetary sanctions

Any monetary sanctions collected by the Commission in any covered judicial or administrative action that is not otherwise distributed to victims of a violation of this chapter or the rules and regulations thereunder underlying such action, unless the balance of the Fund at the time the monetary judgment is collected exceeds $100,000,000.

(B) Additional amounts

If the amounts deposited into or credited to the Fund under subparagraph (A) are not sufficient to satisfy an award made under subsection (b), there shall be deposited into or credited to the Fund an amount equal to the unsatisfied portion of the award from any monetary sanction collected by the Commission in any judicial or administrative action brought by the Commission under this chapter that is based on information provided by a whistleblower.

All income from investments made under paragraph (4).

(4) Investments

(A) Amounts in Fund may be invested

The Commission may request the Secretary of the Treasury to invest the portion of the Fund that is not, in the Commission’s judgment, required to meet the current needs of the Fund.

(B) Eligible investments

Investments shall be made by the Secretary of the Treasury in obligations of the United States or obligations that are guaranteed as to principal and interest by the United States, with maturities suitable to the needs of the Fund as determined by the Commission.

The interest on, and the proceeds from the sale or redemption of, any obligations held in the Fund shall be credited to, and form a part of, the Fund.

(5) Reports to Congress

Not later than October 30 of each year, the Commission shall transmit to the Committee on Agriculture, Nutrition, and Forestry of the Senate, and the Committee on Agriculture of the House of Representatives a report on—(A) the Commission’s whistleblower award program under this section, including a description of the number of awards granted and the types of cases in which awards were granted during the preceding fiscal year;(B) customer education initiatives described in paragraph (2)(B) that were funded by the Fund during the preceding fiscal year;(C) the balance of the Fund at the beginning of the preceding fiscal year;(D) the amounts deposited into or credited to the Fund during the preceding fiscal year;(E) the amount of earnings on investments of amounts in the Fund during the preceding fiscal year;(F) the amount paid from the Fund during the preceding fiscal year to whistleblowers pursuant to subsection (b);(G) the amount paid from the Fund during the preceding fiscal year for customer education initiatives described in paragraph (2)(B);(H) the balance of the Fund at the end of the preceding fiscal year; and(I) a complete set of audited financial statements, including a balance sheet, income statement, and cash flow analysis.

(h) Protection of whistleblowers

(1) Prohibition against retaliation

(A) In general

No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower—(i) in providing information to the Commission in accordance with subsection (b); or(ii) in assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information.

(B) Enforcement

(i) Cause of action

An individual who alleges discharge or other discrimination in violation of subparagraph (A) may bring an action under this subsection in the appropriate district court of the United States for the relief provided in subparagraph (C), unless the individual who is alleging discharge or other discrimination in violation of subparagraph (A) is an employee of the Federal Government, in which case the individual shall only bring an action under section 1221 of title 5.

(ii) Subpoenas

A subpoena requiring the attendance of a witness at a trial or hearing conducted under this subsection may be served at any place in the United States.

(iii) Statute of limitations

An action under this subsection may not be brought more than 2 years after the date on which the violation reported in subparagraph (A) is committed.

Relief for an individual prevailing in an action brought under subparagraph (B) shall include—(i) reinstatement with the same seniority status that the individual would have had, but for the discrimination;(ii) the amount of back pay otherwise owed to the individual, with interest; and(iii) compensation for any special damages sustained as a result of the discharge or discrimination, including litigation costs, expert witness fees, and reasonable attorney’s fees.

(2) Confidentiality

(A) In general

Except as provided in subparagraphs (B) and (C), the Commission, and any officer or employee of the Commission, shall not disclose any information, including information provided by a whistleblower to the Commission, which could reasonably be expected to reveal the identity of a whistleblower, except in accordance with the provisions of section 552a of title 5, unless and until required to be disclosed to a defendant or respondent in connection with a public proceeding instituted by the Commission or any entity described in subparagraph (C). For purposes of section 552 of title 5, this paragraph shall be considered a statute described in subsection (b)(3)(B) of such section 552.

(B) Effect

Nothing in this paragraph is intended to limit the ability of the Attorney General to present such evidence to a grand jury or to share such evidence with potential witnesses or defendants in the course of an ongoing criminal investigation.

(i) In general

Without the loss of its status as confidential in the hands of the Commission, all information referred to in subparagraph (A) may, in the discretion of the Commission, when determined by the Commission to be necessary or appropriate to accomplish the purposes of this chapter and protect customers and in accordance with clause (ii), be made available to—(I) the Department of Justice;(II) an appropriate department or agency of the Federal Government, acting within the scope of its jurisdiction;(III) a registered entity, registered futures association, or self-regulatory organization as defined in section 78c(a) of title 15;(IV) a State attorney general in connection with any criminal investigation;(V) an appropriate department or agency of any State, acting within the scope of its jurisdiction; and(VI) a foreign futures authority.

(ii) Maintenance of information

Each of the entities, agencies, or persons described in clause (i) shall maintain information described in that clause as confidential, in accordance with the requirements in subparagraph (A).

(iii) Study on impact of FOIA exemption on Commodity Futures Trading Commission

(I) Study

The Inspector General of the Commission shall conduct a study—(aa) on whether the exemption under section 552(b)(3) of title 5 (known as the Freedom of Information Act) established in paragraph (2)(A) aids whistleblowers in disclosing information to the Commission;(bb) on what impact the exemption has had on the public’s ability to access information about the Commission’s regulation of commodity futures and option markets; and(cc) to make any recommendations on whether the Commission should continue to use the exemption.

(II) Report

Not later than 30 months after July 21, 2010, the Inspector General shall—(aa) submit a report on the findings of the study required under this clause to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives; and(bb) make the report available to the public through publication of a report on the website of the Commission.

(3) Rights retained

Nothing in this section shall be deemed to diminish the rights, privileges, or remedies of any whistleblower under any Federal or State law, or under any collective bargaining agreement.

(i) Rulemaking authority

The Commission shall have the authority to issue such rules and regulations as may be necessary or appropriate to implement the provisions of this section consistent with the purposes of this section.

(j) Implementing rules

The Commission shall issue final rules or regulations implementing the provisions of this section not later than 270 days after July 21, 2010.

(k) Original information

Information submitted to the Commission by a whistleblower in accordance with rules or regulations implementing this section shall not lose its status as original information solely because the whistleblower submitted such information prior to the effective date of such rules or regulations, provided such information was submitted after July 21, 2010.

(l) Awards

A whistleblower may receive an award pursuant to this section regardless of whether any violation of a provision of this chapter, or a rule or regulation thereunder, underlying the judicial or administrative action upon which the award is based occurred prior to July 21, 2010.

(m) Provision of false information

A whistleblower who knowingly and willfully makes any false, fictitious, or fraudulent statement or representation, or who makes or uses any false writing or document knowing the same to contain any false, fictitious, or fraudulent statement or entry, shall not be entitled to an award under this section and shall be subject to prosecution under section 1001 of title 18.

(n) Nonenforceability of certain provisions waiving rights and remedies or requiring arbitration of disputes

(1) Waiver of rights and remedies

The rights and remedies provided for in this section may not be waived by any agreement, policy form, or condition of employment including by a predispute arbitration agreement.

(2) Predispute arbitration agreements

No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.(Sept. 21, 1922, ch. 369, §23, as added Pub. L. 111–203, title VII, §748, July 21, 2010, 124 Stat. 1739.)

CFTC whistleblower program

Audit Reveals IRS Whistleblower Program Needs Improvements

TIGTA Audits of IRS Whistleblower Program According to an audit report by the Treasury Inspector General for Tax Administration (TIGTA), the IRS Whistleblower Office (WO) … Continued

Experienced SOX Whistleblower Lawyers: Tier 1 Firm

The SOX whistleblower lawyers at Zuckerman Law have substantial experience litigating Sarbanes Oxley whistleblower retaliation claims and have achieved substantial recoveries for officers, executives, accountants, auditors, and other senior professionals.

Click here to read client testimonials about the firm’s work in SOX whistleblower matters and other employment-related litigation. In 2019, the National Law Review awarded Zuckerman its Go-To Thought Leadership Award for his analysis of developments in whistleblower law.

To schedule a free preliminary consultation, click here or call us at 202-262-8959.

What is the Sarbanes-Oxley (SOX) corporate whistleblower protection law?

The Sarbanes-Oxley Act (“SOX”) prohibits employers from taking adverse employment actions against employees (also referred to here as “whistleblowers”) in retaliation for reporting information about conduct that the employees reasonably believe constitutes securities fraud, shareholder fraud, bank fraud, mail fraud, wire fraud, or a violation of any SEC rule or regulation. Adverse employment actions include discharging, demoting, suspending, threatening, harassing, or in any other manner discriminating against a whistleblower. Even disclosing the identity of a whistleblower has been held to be an adverse employment action under SOX.

The purpose of these protections is to combat a “corporate code of silence” that discouraged employees from reporting suspected fraud internally or to the authorities. To avoid another Enronesque catastrophe, Congress sought to ensure that whistleblowers could serve as an effective early-warning system for potential fraud. Congress did so by specifying that to be protected under SOX: (1) whistleblowers need not complain of actual fraud but rather conduct that they reasonably believe constitutes fraud, and (2) whistleblowers need not wait until fraud occurs but rather may complain about violations that they reasonably believe are likely to occur.

Guide to SOX Corporate Whistleblower Protection Law from SOX Whistleblower Lawyers

The whistleblower protection provision of the Sarbanes-Oxley Act provides robust protection to corporate whistleblowers, and indeed some SOX whistleblowers have achieved substantial recoveries. Zuckerman Law has released a guide to the SOX whistleblower protection law: Sarbanes-Oxley Whistleblower Protection: Robust Protection for Corporate Whistleblowers.

The guide summarizes SOX whistleblower protections and offers concrete tips for corporate whistleblowers from lawyers that have more than a decade of experience litigating SOX whistleblower cases.

The goal of the guide is to arm corporate whistleblowers with the knowledge to effectively combat whistleblower retaliation, avoid the pitfalls that can weaken a SOX whistleblower case, and formulate an effective strategy to obtain the maximum recovery.

Who is protected under the SOX Corporate Whistleblower Protection Law?

Section 806 of SOX protects (1) employees of publicly traded companies and (2) employees of contractors and subcontractors of publicly traded companies who report fraud committed by a publicly traded company (as opposed to fraud committed by a private company, including contractors and subcontractors).

**What whistleblowing is protected under SOX, i.e., what is SOX protected activity or SOX protected conduct?**

SOX protects employee disclosures of conduct that an employee reasonably believes constitutes securities fraud, shareholder fraud, bank fraud, mail fraud, wire fraud, or a violation of any SEC rule or regulation. SOX protects disclosures of violations that a whistleblower reasonably believes are likely to occur, even if such violations have not yet been committed.

Does a whistleblower have to disclose an actual violation of law to be protected under SOX?

No: whistleblowers need not disclose actual fraud. Rather, they merely must disclose conduct that they reasonably believe constitutes any type of fraud enumerated in Section 806 of SOX.

Are disclosures made in the ordinary course of performing one’s job duties protected under Sarbanes-Oxley?

Most likely yes. Most Department of Labor Administrative Law Judges (“ALJ”) who have addressed this issue, as well as the Administrative Review Board (“ARB”), have held that disclosures made pursuant to one’s job duties are protected. A U.S. district court in New York reached the same conclusion.

While employers may assert the duty-speech defense—that disclosures made while performing routine job duties are not protected—the decisions by the ALJs, ARB, and U.S. district court that have addressed this issue suggest that courts will reject the duty-speech defense.

What types of retaliation are prohibited by the Sarbanes-Oxley Act (SOX) whistleblower law?

A broad range of retaliatory actions are actionable under SOX, including discharging, demoting, suspending, threatening, harassing, or in any other manner discriminating against a whistleblower. Even disclosing the identity of a whistleblower has been held to be an adverse employment action under SOX.

What damages or remedies can a corporate whistleblower recover under the SOX whistleblower protection law?

A prevailing SOX whistleblower may obtain several types of relief, including lost wages and benefits; reinstatement; and special damages, which include damages for emotional distress, impairment of reputation, personal humiliation, and other noneconomic harm resulting from the retaliation.

Juries have recently awarded substantial damages to SOX whistleblowers. In August 2015, a federal jury in New York awarded $1.6 million in compensatory damages to a SOX whistleblower, even though the whistleblower had not suffered substantial economic loss. In March 2014, a California jury awarded $6 million in compensatory damages to another SOX whistleblower. (The parties settled before a punitive-damages determination was made.) And in September 2013, the U.S. Court of Appeals for the Ninth Circuit affirmed a jury verdict that awarded $2.2 million in damages plus $2.4 million in attorney’s fees to two SOX whistleblowers who had been fired in retaliation for their disclosure.

What must a whistleblower prove to prevail in a SOX whistleblower retaliation case?

A whistleblower must demonstrate by a preponderance of the evidence that (1) he or she engaged in protected activity; (2) the employer knew of the whistleblower’s protected activity; (3) the whistleblower suffered an adverse personnel action; and (4) the protected activity was a “contributing factor” in the adverse action.

The contributing-factor causation standard is broad and forgiving. A whistleblower need only proffer evidence that his or her protected activity played any role whatsoever in the adverse action. Even if the protected activity is one of many reasons why the employer took the adverse action, the whistleblower prevails in establishing contributing-factor causation. To prove causation, a whistleblower may use circumstantial evidence including “motive, bias, work pressures, past and current relationships of the involved parties, animus, temporal proximity, pretext, shifting explanations, and material changes in employer practices, among other types of evidence.” Bobreski v. J. Givoo Consultants, Inc., ARB No. 13-001 (U.S. Dep’t of Labor Aug. 29, 2014).

An employer can overcome a whistleblower’s showing of contributing-factor causation only by demonstrating by clear and convincing evidence that it would have taken the same adverse action against the whistleblower had the whistleblower not engaged in protected activity. It is not sufficient for an employer to demonstrate that it relied on legitimate reasons in addition to the employee’s protected activity when deciding to take the adverse action; no matter how minuscule the protected activity was in the employer’s decision, it is a contributing factor unless the employer would have—not merely could have—taken the same adverse action absent the protected activity.

What is the statute of limitations under SOX?

The statute of limitations is 180 days. Specifically, a whistleblower may bring a SOX claim “not later than 180 days after the date on which the violation occurs, or after the date on which the employee became aware of the violation.” 18 U.S.C. § 1514A(b)(2)(D).

Can a SOX Whistleblower Obtain a Reward or Bounty for Disclosing Fraud to the SEC?

Yes, the SEC Whistleblower Reward Program provides whistleblowers with a strong monetary incentive to report wrongdoing to the SEC.

To learn more how to qualify for an SEC whistleblower award, download our guide to the SEC Whistleblower Program and call us to schedule a free consultation at 202-262-8959.

Protected Whistleblowing Under the Sarbanes-Oxley Act

Prohibited Whistleblower Retaliation Under Sarbanes-Oxley

What acts of retaliation are prohibited by the Sarbanes-Oxley whistleblower protection law?
Is constructive discharge a prohibited act of retaliation under SOX?
Does SOX prohibit employers from “outing” confidential whistleblowers?
Is retaliation that occurred outside of the statute of limitations period relevant evidence of retaliation?
Does subjecting an employee to heightened scrutiny evidence retaliation?
Does SOX prohibit post-termination retaliation?
Is retaliation that occurred outside of the statute-of-limitations period relevant evidence of retaliation?

Proving Sarbanes-Oxley Whistleblower Retaliation

Relief or Damages for SOX Whistleblowers

Litigating Sarbanes-Oxley Whistleblower Cases

Additional FAQs About the Sarbanes-Oxley Whistleblower Protection Law

Experienced SOX Whistleblower Attorneys

best sexual harassment attorneys Washington DC Maryland Virginia The SOX whistleblower lawyers at Zuckerman Law have substantial experience litigating Sarbanes Oxley whistleblower retaliation claims. Click here to read client testimonials about the firm’s work in SOX whistleblower and other employment-related litigation. To schedule a free preliminary consultation, click here or call us at 202-262-8959.

See our column in Forbes: One Billion Reasons Why The SEC Whistleblower-Reward Program Is Effective.
See our column in Going Concern: Sarbanes-Oxley 15 Years Later: Accountants Need to Speak Up Now More Than Ever.
See our post in Accounting Today: Whistleblower Protections and Incentives for Auditors and Accountants.
See our post in The Compliance and Ethics Blog: Shkreli Trial Reveals the Challenges Faced by Compliance Whistleblowers.

We have assembled a team of leading whistleblower lawyers to provide top-notch representation to Sarbanes-Oxley (SOX) whistleblowers. U.S. News and Best Lawyers® have named Zuckerman Law a Tier 1 Law Firm in the Washington D.C. metropolitan area.

Matt Stock is a Certified Public Accountant, Certified Fraud Examiner and former KPMG external auditor. As an auditor, Stock developed expertise in financial statement analysis and internal controls testing and fraud recognition. He uses his auditing experience to help IRS, CFTC and SEC whistleblowers investigate and disclose complex financial frauds to the government and develop a roadmap for the SEC to take an enforcement action. Matt has been interviewed on CNBC, quoted extensively about whistleblower rewards in the media, and is the lead author of SEC Whistleblower Program: Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award.
Dallas Hammer has extensive experience representing whistleblowers in retaliation and rewards claims and has written extensively about cybersecurity whistleblowing. He was selected by his peers to be included in The Best Lawyers in America® in the category of employment law in 2021 and 2022.
Described by the National Law Journal as a “leading whistleblower attorney,” founding Principal Jason Zuckerman has established precedent under a wide range of whistleblower protection laws and obtained substantial compensation for his clients and recoveries for the government in whistleblower rewards and whistleblower retaliation cases. He served on the Department of Labor’s Whistleblower Protection Advisory Committee, which makes recommendations to the Secretary of Labor to improve OSHA’s administration of federal whistleblower protection laws. Zuckerman also served as Senior Legal Advisor to the Special Counsel at the U.S. Office of Special Counsel, the federal agency charged with protecting whistleblowers in the federal government. At OSC, he oversaw investigations of whistleblower claims and obtained corrective action or relief for whistleblowers.
Zuckerman was recognized by Washingtonian magazine as a “Top Whistleblower Lawyer” (2020, 2018, 2017, 2015, 2009, and 2007), selected by his peers to be included in The Best Lawyers in America® in the category of employment law (2011-2021) and in SuperLawyers in the category of labor and employment law (2012 and 2015-2021), is rated 10 out of 10 by Avvo, based largely on client reviews, and is rated AV Preeminent® by Martindale-Hubbell based on peer reviews
We have published extensively on whistleblower rights and protections, and speak nationwide at seminars and continuing legal education conferences. We blog about new developments under whistleblower retaliation and rewards laws at the Whistleblower Protection Law and SEC Awards Blog, and in 2019, the National Law Review awarded Zuckerman its “Go-To Thought Leadership Award” for his analysis of developments in whistleblower law.
Our attorneys have been quoted by and published articles in leading business, accounting, and legal periodicals, including The Wall Street Journal, Forbes, CNBC, MarketWatch, Vox, Accounting Today, Going Concern, Law360 – Expert Analysis, Investopedia, The National Law Review, inSecurities, Government Accountability Project, S&P Global Market Intelligence, Risk & Compliance Magazine, The D&O Diary, The Compliance and Ethics Blog, Compliance Week and other printed and electronic media.

Sarbanes whistleblower law

The “Definitive and Specific” Standard for Protected Activity

Less than four years after Congress enacted SOX, the ARB appointed by Secretary of Labor Elaine Chao significantly weakened Section 806 of SOX by imposing onerous burdens on whistleblowers that were contrary to the statute’s plain meaning and intent. In Platone v. FLYi, Inc., the ARB set forth the following requirements for SOX protected conduct:

A SOX complainant’s disclosure must “definitively and specifically” relate to one of the six enumerated categories found in 18 U.S.C. § 1514A.
The disclosure must “approximate . . . the basic elements” of the kind of fraud or violation alleged. For example, a disclosure about securities fraud must allege “a material misrepresentation (or omission), scienter, a connection with the purchase, or sale of a security, reliance, economic loss, and loss causation.”

Platone v. FLYi, Inc., ARB Case No. 04-154, 2006 WL 3246910 (ARB Sept. 29, 2006).

Under Platone, SOX whistleblower protection was limited almost only to employees who were familiar with the intricacies of federal securities law. Many cases were dismissed on summary judgment based on the failure to meet the onerous Platone standard.

And to compound Platone, some federal courts imposed an unduly high standard of objective reasonableness. For example, a Fifth Circuit decision concluded that an internal complaint about a company’s overstating gross profits in violation of SEC Staff Accounting Bulletin 101 did not qualify as protected conduct because the company’s financial reports had not yet been filed with the SEC. See Allen v. Admin. Review Bd., 514 F.3d 468, 476 (5th Cir. 2008). The apparent logic of Allen is that the whistleblower should wait until shareholders have been defrauded before making an internal complaint. That reasoning, however, is contrary to the prophylactic purpose of Section 806.

Relying on the Chevron doctrine, many federal courts deferred to the ARB’s interpretation and adopted the “definitively and specifically” standard for protected activity under SOX. E.g., Welch v. Chao, 536 F.3d 269, 276 n.2 (4th Cir. 2008).

The ARB Changes Course and Broadly Expands Protections Under SOX

Despite its initially narrow construction of the scope of protected conduct under SOX, the ARB began issuing decisions that slowly chipped away at the “definitively and specifically” standard. In May of 2011, the ARB appointed by Secretary of Labor Hilda Solis issued a seminal decision in Sylvester v. Parexel, which expressly abrogated Platone and adopted the following broad construction of SOX protected conduct:

SOX complainants need only show that they reasonably believed the conduct complained about violated a relevant law. Sylvester v. Parexel Int’l LLC, ARB Case No. 07-123, at 14 (ARB May 25, 2011).
An employee need not wait until misconduct occurs to make a protected disclosure, so long as the employee “reasonably believes that the violation is likely to happen.” at 16.
The reasonable belief standard does not require complainants to tell management or the authorities why their beliefs are reasonable. at 42.
SOX complainants no longer need to show that their disclosures “definitively and specifically” relate to the relevant laws. at 41.
SOX complainants do not need to establish criminal fraud. Requiring a complainant to allege, prove, or approximate the elements of fraud would be contrary to the purpose of the whistleblower protection provision. at 47.

Sylvester also held that the Platone standard was in conflict with “the plain language of the SOX whistleblower protection provision, which protects ‘all good faith and reasonable reporting of fraud.’” Id. at 14–15, 30 (quoting 148 Cong. Rec. S7418-01, S7420)

Federal Courts Are Adopting the ARB’s Broad Interpretation of SOX Protected Conduct

After the ARB issued Sylvester, the key battleground in SOX litigation in federal court became whether federal courts would continue deferring to the prior ARB’s Platone decision or would instead adopt the current ARB’s Sylvester decision. Five years later, we know the answer, and it is decisively positive for whistleblowers. In particular, the Second, Third, Sixth, and Eighth Circuits and several district courts have adopted the Sylvester standard of SOX protected conduct, and no federal court has rejected the reasoning in Sylvester. See Beacom v. Oracle America, Inc., No. 15-1729, 2016 WL 3144730, at 3 (8th Cir. June 6, 2016) (expressly adopting the Sylvester standard); Rhinehimer v. U.S. Bancorp Invs., Inc., 787 F.3d 797 (6th Cir. 2015); Nielsen v. AECOM Tech. Corp., 762 F.3d 214, 220–21 (2d Cir. 2014) (granting Skidmore deference to Sylvester); Wiest v. Lynch, 710 F.3d 121 (3d Cir. 2013) (according Chevron deference to Sylvester); Stewart v. Doral Fin. Corp., 997 F. Supp. 2d 129, 135–36 (D.P.R. 2014) (adopting the Sylvester standard); Leshinsky v. Telvent GIT, S.A., 942 F. Supp. 2d 432, 443 (S.D.N.Y. 2013).

Recently the Sixth Circuit issued an opinion in Rhinehimer v. U.S. Bancorp Investments, Inc., adopting the Sylvester standard and affirming a jury verdict for a whistleblower who disclosed unsuitability fraud. Rhinehimer, 787 F.3d at 811–13. Rhinehimer agrees with the ARB’s observation in Sylvester “that an interpretation demanding a rigidly segmented factual showing justifying the employee’s suspicion [referring to Platone] undermines this purpose and conflicts with the statutory design, which turns on employees’ reasonable belief rather than requiring them to ultimately substantiate their allegations.” Id. at 810. In addition, Rhinehimer suggests that the issue of objective reasonableness is rarely amenable to summary disposition:

“[T]he issue of objective reasonableness should be decided as a matter of law only when no reasonable person could have believed that the facts [known to the employee] amounted to a violation” or otherwise justified the employee’s belief that illegal conduct was occurring. If, on the other hand, “reasonable minds could disagree about whether the employee’s belief was objectively reasonable, the issue cannot be decided as a matter of law.”

Id. at 811–12 (citations omitted).

At trial, the jury found that U.S. Bancorp Investments (“USBII”) disciplined and fired Michael Rhinehimer in retaliation for alerting one of his superiors to unsuitable trades a coworker made to the detriment of an elderly client. Rhinehimer’s manager expressly admitted that he gave Rhinehimer a written warning for opposing the unsuitable trades because Rhinehimer’s complaint “prompted a FINRA investigation . . . and anybody associated with this was really feeling the heat.” Id. at 804. In addition, the manager warned Rhinehimer that if he were to sue the bank, his career in the city would be over. The bank placed Rhinehimer on a performance improvement plan requiring him to increase his revenue to $40,000 per month. Shortly thereafter, the bank terminated his employment.

On appeal, USBII argued that, under Platone, Rhinehimer was required to establish facts from which a reasonable person could infer each of the elements of an unsuitability fraud claim, including the misrepresentation or omission of material facts and that the broker acted with intent or reckless disregard for the client’s needs. The Sixth Circuit held that the evidence was more than sufficient to sustain the jury’s finding that Rhinehimer reasonably believed that certain trades constituted unsuitability fraud. Id. at 812. And the court noted that the “employee’s reasonable belief is a simple factual question requiring no subset of findings that the employee had a justifiable belief as to each of the legally-defined elements of the suspected fraud.” Id. at 806.

Rhinehimer is an important development for corporate whistleblower rights and protections in that it restores the original intent of SOX whistleblower protection. A whistleblower’s reasonable belief is now assessed in a manner consistent with similar anti-retaliation statutes; i.e., the employee must subjectively believe that there is a violation, and the belief must be objectively reasonable. And as federal courts continue to adopt or defer to the ARB’s construction of SOX protected conduct as articulated in Sylvester, SOX whistleblowers are more likely to survive summary judgment.

This decision is part of a trend,[1] both at the DOL and in federal courts, of broadly construing SOX’s protection of whistleblowers and rejecting prior decisions that imposed a heightened standard of objective reasonableness.

In May 2016, the Fourth Circuit held that a SOX whistleblower can establish the reasonableness of his or her belief by proffering corroborating testimony from coworkers. See Deltek, Inc. v. Dep’t of Labor, Admin. Review Bd., No. 14-2415, 2016 WL 2946570 (4th Cir. May 20, 2016). Dinah Gunther began working for Deltek, Inc., as a financial analyst in 2008. Gunther, whose position was within Deltek’s IT department, lacked a college degree but had experience as an executive assistant and workflow manager. Soon after beginning work at Deltek, Gunther noticed a lack of clear procedure and documentation for Deltek’s billing disputes with Verizon Business (“Verizon”). She suspected Deltek employees were obscuring the IT department’s financial condition by subjecting Verizon to unfounded billing disputes, thereby concealing a shortfall in Deltek’s telecommunications budget. Gunther’s coworker, who was responsible for managing the billing relationship between Deltek and Verizon, agreed with her concern. Gunther reported the situation to her immediate supervisor, after which she faced hostility in the workplace. She then expressed her concerns of ongoing fraud in a letter to Deltek’s general counsel, which she copied to the SEC. Deltek’s general counsel met with Gunther and asked her to gather information about her concerns. Following their meeting, the general counsel investigated Gunther’s report and found no improper activity had occurred, but Gunther noticed her coworkers shredding documents.

After continuing to experience mistreatment at work, Gunther informed Deltek’s vice president of human resources that she was experiencing stress-related medical issues that were affecting her work. Gunther accepted Deltek’s offer of paid leave, conditioned on Gunther’s being able to return to work with 24 hours’ notice. Upon taking leave, Gunther filed a SOX complaint with the Occupational Safety and Health Administration (“OSHA”). Later, Gunther attempted to return to work on a Monday after having given notice of her return the prior Saturday. But a Deltek attorney and the vice president of human resources met her at the office to say she could not yet return to work, although they assured her she still had a job. The following day, Deltek fired Gunther for being confrontational and disruptive in that meeting.

OSHA concluded that there was no violation of SOX. Gunther appealed, and an administrative law judge (“ALJ”) held Deltek liable for retaliating against her. The ARB affirmed, and Deltek appealed. The Fourth Circuit determined that Gunther’s belief that Deltek was violating securities laws was reasonable. Id. at *7.

Deltek argued that Gunther’s belief was not objectively reasonable because she lacked the education and experience necessary to recognize securities fraud. The Fourth Circuit rejected this argument, stating that consideration of the “factual circumstances,” including information Gunther learned from coworkers, was warranted. See id. The Fourth Circuit agreed with the ALJ’s determination, which the ARB affirmed, that “in forming her belief Gunther reasonably relied on her close dealings with [her coworker], who did have extensive experience in Verizon invoicing . . . [and] who was himself a ‘credible, convincing witness at the hearing.’” Id. Therefore, Gunther’s belief was reasonable, and her activity was protected under SOX. Id.

[1] See, e.g., Wiggins v. ING U.S., Inc., No. 3:14-CV-01089-JCH, 2015 WL 8779559 (D. Conn. Dec. 15, 2015). In Wiggins, a U.S. district court in Connecticut held that the heightened Rule 9(b) pleading standard for fraud claims does not apply to SOX retaliation claims. Id. at *3. The court held, furthermore, that a whistleblower can plead that she had a reasonable belief that her employer violated one of Section 1514A’s enumerated fraud provisions without alleging specifically that she believed that the employer’s conduct satisfied all of the elements of the federal statute or SEC rule that allegedly was violated. See id. at *5–7. The court found that the plaintiff’s complaint sufficiently “tethered” her subjective belief to a violation of Section 1514A’s enumerated provisions, where the plaintiff was trained in federal securities laws and her complaint identified specific federal statutes and regulations, the responsibilities the employer had pursuant to those laws, and the specific actions that formed the basis of the plaintiff’s belief that the employer was breaching those responsibilities. Id.

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SEC Advocates Broad Construction of Dodd-Frank Whistleblower Protection Provision

SEC Advocates Broad Construction of Whistleblower Protection Provision in Dodd-Frank Act The Securities and Exchange Commission (“SEC”) continues to advocate a broad … Continued

SEC Advocates Broad Construction of Dodd-Frank Whistleblower Protection Law

SEC Files Amicus Curiae Brief in Dodd-Frank Whistleblower Retaliation Case The Securities and Exchange Commission (“SEC”) continues to advocate a broad construction of the anti-retaliation … Continued

Investment Fraud Whistleblower Lawyers

Item: ZUCKERMAN LAW
Rating: 5
Author: Jason Zuckerman

The SEC protects investors against investment fraud, and it incentivizes whistleblowers to help expose such fraud and other violations of the federal securities laws. The Dodd-Frank Act, which was signed into law in 2010, entitles whistleblowers to receive a reward if their original information leads to a successful enforcement action with total monetary sanctions of more than $1 million.

Under the SEC Whistleblower Program, a whistleblower may receive an award of between 10% and 30% of the total monetary sanctions collected. If represented by counsel, a whistleblower may submit a tip anonymously to the SEC. The Dodd-Frank Act also protects SEC whistleblowers against retaliation.

Since 2012, the SEC Whistleblower Office has issued nearly $1.8 billion in awards to whistleblowers, including awards to our clients.

If you have information that may qualify for an SEC whistleblower award, contact the Director of our SEC whistleblower practice at [email protected] or call our leading SEC whistleblower lawyers at (202) 930-5901 or (202) 262-8959.

All inquiries are confidential. In conjunction with our courageous clients, we have helped the SEC halt multi-million dollar investment schemes, expose violations at large publicly traded companies, and return funds to defrauded investors.

Best SEC Whistleblower Lawyers & Attorneys best maryland employment lawyers

Recently the Association of Certified Fraud Examiners published a profile of Matt Stock’s success working with whistleblowers to fight fraud:

SEC Targeting Investment Fraud

The SEC recently increased staffing in its investment adviser/investment company examination program by 20%, according to OCIE Director Marc Wyatt in a speech. Additionally, the SEC’s 2018 enforcement priorities, 2019 enforcement priorities, and 2020 enforcement priorities indicate the SEC will pay particular attention to:

Disclosures of the costs of investing;
Electronic investment advice;
Wrap fee programs;
Never-before-examined investment advisers;
Senior investors and retirement accounts and products; and
Mutual funds and exchange-traded funds (ETFs).

In addition, the SEC will continue to pay attention to other fraudulent offerings, such as Ponzi schemes and unregistered securities offerings.

Whistleblowers Are Critical to Enforcement of Anti-Fraud Laws

Despite the increased resources, whistleblowers remain a key source of information for the SEC. Many registered investment advisers are regulated solely by the SEC, and unlike registered broker-dealers, investment advisers have no self-regulatory organization. Further, more than 2,000 new investment advisers have registered with the SEC within the past two years.

Whistleblowers play a vital role in helping the SEC enforce laws when its resources are stretched thin. As SEC Chair Mary Jo White stated, “[Whistleblowers] provide an invaluable public service, and they should be supported…We have seen enough to know that whistleblowers increase our efficiency and conserve our scarce resources.”

Examples of Investment Company Act Violations

The SEC defines investment companies as any corporation, business trust, partnership, or limited liability company that issues securities and is primarily engaged in the business of investing in securities. The SEC may bring an enforcement action against an investment adviser for a host of violations, including:

Failing to disclose fees, charges, and conflicts of interest;
Failing to maintain adequate written policies and procedures;
Parking;
Steering;
False or misleading advertising; and
Failing to safeguard customer data.

In the past year, notable areas of fraud that have produced substantial settlements and penalties include:

Failing to Disclose Fees, Charges, or Conflicts of Interest

Section 206 of the Investment Adviser Act of 1940 (IAA) prohibits fraudulent and deceptive conduct, and Section 207 proscribes material misstatements in investment adviser registration applications or reports. The SEC relies on these statutory authorities to bring enforcement actions when investment advisers fail to disclose conflicts of interest, as well as client fees or charges.

For example, in December 2015, two JP Morgan wealth management subsidiaries agreed to pay $267 million to settle charges that they failed to disclose conflicts of interest to clients. According to the SEC order, the investment advisory business and the bank invested clients in the firm’s own proprietary investment products without properly disclosing this preference. In a parallel action, JP Morgan Chase Bank agreed to pay an additional $40 million penalty to the U.S. Commodity Futures Trading Commission (CFTC). (Note: the CFTC also has a whistleblower program that offers rewards for original information that leads to successful enforcement actions.)

In the SEC’s press release, the Director of the Enforcement Division, Andrew J. Ceresney, stressed the importance of adequate disclosure concerning conflicts of interest. He stated: “Firms have an obligation to communicate all conflicts so a client can fairly judge the investment advice they are receiving. These J.P. Morgan subsidiaries failed to disclose that they preferred to invest client money in firm-managed mutual funds and hedge funds, and clients were denied all the facts to determine why investment decisions were being made by their investment advisers.”

Other notable recent actions for failures to disclose conflicts, fees, or charges include:

In October 2015, three private equity fund advisers within the Blackstone Group paid almost $39 million to resolve allegations they violated Section 206 for failing to disclose accelerated monitoring fees and a conflict of interest. Nearly $29 million was returned to investors;
In November 2015, Fenway Partners LLP and four of its employees paid more than $10 million to settle charges that it violated Section 206 by failing to disclose a conflict of interest regarding the payment of fund and portfolio company assets to former employees and an affiliated entity.
In September 2016, WL Ross & Co. LLC paid $2.3 million to resolve charges that it failed to disclose material information regarding fee allocation practices, in violation of Sections 206(2) and 206(4).

Misrepresenting Investments

Lying to investors about how funds will be invested violates several anti-fraud provisions of the federal securities laws. In January 2018, the SEC obtained approximately $8 million in disgorgement and penalties for a scheme in which an unregistered broker lied to prospective investors by stating that their funds would be invested in a low-risk, private off-shore trading program when in fact the investor funds were misused and misappropriated. This scheme raised $15.8 million from 26 investors in eight states and entailed sending investors false profit statements and otherwise deceiving investors.

Failing to Maintain Adequate Written Policies and Procedures

Rule 206(4)-7 requires investment advisers to maintain written and policies and procedures reasonably designed to prevent violations of the IAA. An investment adviser’s failure to do so violates Section 206(4). The SEC routinely enforces this provision in conjunction with other charges. Some of the cases above included charges that the investment advisers also violated Rule 206(4)-7. Other examples include:

On August 23, 2016, four private equity fund advisers affiliated with Apollo Global Management agreed to a $52.7 million settlement to resolve a variety of charges, including that the advisers violated Section 206(4) and Rule 206(4)-7 by failing to maintain adequate policies and procedures.
On September 14, 2016, First Reserve Management LP resolved allegations, including that it had violated Rule 206(4)-7, for $3.5 million.

Parking and Steering

Parking and steering schemes may constitute fraudulent practices in violation of Section 206. Parking is a practice of prearranged trading that benefits one account over another. Unlawful steering occurs when an investment adviser directs a client to investments that will generate higher fees for the adviser, without disclosing the conflict of interest to clients. Recent parking and steering cases include:

In December 2015, Morgan Stanley Investment Management agreed to pay $8.8 million to resolve the SEC’s claim that a portfolio manager colluded with a brokerage firm trader to trade at prearranged prices to the benefit of some client accounts, but the detriment of others.
In March 2016, three AIG affiliates paid more than $9.5 million to settle charges that they steered clients to investments that put unnecessary charges on the investor but generated an additional $2 million in fees without disclosing the conflict of interest.

False or Misleading Advertising

Section 206 of the IAA, and Rule 206(4)-1 in particular, also regulates investment advisers’ advertisements. The rule limits testimonials and recommendations and prohibits false and misleading advertising. Past examples of false or misleading advertising/misconduct that led to or arose from the financial crisis include:

Concealing risks, terms, and improper pricing from investors in CDOs and other complex structured products;
Making misleading disclosures to investors about mortgage-related risks and exposure; and
Concealing the extent of risky mortgage-related and other investments in mutual funds and other financial products.

This misconduct resulted in over 200 entities and individuals being charged by the SEC. More recent examples of false or misleading advertising include:

In December 2014, the SEC announced that investment management firm F-Squared Investments agreed to pay $35 million for defrauding investors through false performance advertising about its flagship product “AlphaSector.” According to the SEC’s order, virtually “all of F-Squared’s claimed outperformance relative to the S&P 500 Index…is attributable to its data compilation error.” AlphaSector became F-Squared’s largest ETF strategy on the market, with approximately $28.5 billion in assets following the strategy.
In August 2016, the SEC charged thirteen investment advisory firms a total of $2.2 million for negligently relying on claims by F-Squared Investments that its AlphaSector strategy had outperformed the S&P Index for several years. The Director of the SEC Enforcement Division at that time, Andrew Ceresney, said: “When an investment adviser echoes another firm’s performance claims in its own advertisements, it must verify the information first rather than merely accept it as fact. These [thirteen] advisers negligently passed many of F-Squared’s claims onto their own clients, who were consequently relying upon false and misleading information when making investment decisions.”
In May 2017, the SEC charged Bryant United Capital Funding, Inc. with inappropriately raising more than $22.7 million from 100 investors across the country by falsely promising investors a risk-free, guaranteed minimum 30% annual returns on the investments. In addition, the fraudster falsely told investors that their funds were placed in a safe escrow account to serve solely as proof of funds to secure a line of credit for the investments.

Failing to Safeguard Customer Data

Morgan Stanley Smith Barney LLC agreed to pay a $1 million penalty to settle charges for its failure to protect customer data. According to the SEC order, the firm did not adopt written policies and procedures reasonably designed to protect customer data. Some of the data was hacked and even offered for sale online.

According to PwC’s 2016 crime survey, economic crime has outpaced company preparedness and as a result, U.S. organizations have experienced an increase in cybercrime compared to prior years. This will continue to be a priority enforcement area for the SEC. Companies should ensure compliance with federal securities laws, which require investment companies to adopt written policies and procedures reasonably designed to protect customer records and information.

Negligent Conduct Violates the IAA and Scienter is Not Required

Unlike many other laws dealing with fraudulent conduct, the IAA may be violated when the investment adviser is merely negligent, as opposed to specifically intending to defraud a client. For example, because Section 206(2) prohibits conduct that operates as a fraud, an investment adviser may engage in prohibited conduct merely through negligence.

2024 SEC Examination Priorities for Enforcement of the IAA

The SEC’s 2024 Examination Priorities clarify that particular examination focus will include:

Marketing practice assessments for whether advisers, including advisers to private
funds, have: (1) adopted and implemented reasonably designed written policies
and procedures to prevent violations of the Advisers Act and the rules thereunder
including reforms to the Marketing Rule; (2) appropriately disclosed their marketing-
related information on Form ADV; and (3) maintained substantiation of their
processes and other required books and records. Marketing practice reviews will
also assess whether disseminated advertisements include any untrue statements of a
material fact, are materially misleading, or are otherwise deceptive and, as applicable,
comply with the requirements for performance (including hypothetical and
predecessor performance), third-party ratings, and testimonials and endorsements.
Compensation arrangement assessments focusing on: (1) fiduciary obligations of
advisers to their clients, including registered investment companies, particularly
with respect to the advisers’ receipt of compensation for services or other material
payments made by clients and others; (2) alternative ways that advisers try to
maximize revenue, such as revenue earned on clients’ bank deposit sweep programs;
and (3) fee breakpoint calculation processes, particularly when fee billing systems are
not automated.
Valuation assessments regarding advisers’ recommendations to clients to invest
in illiquid or difficult to value assets, such as commercial real-estate or private
placements.
Safeguarding assessments for advisers’ controls to protect clients’ material non-public
information, particularly when multiple advisers share office locations, have
significant turnover of investment adviser representatives, or use expert networks.
Disclosure assessments to review the accuracy and completeness of regulatory filings,
including Form CRS, with a particular focus on inadequate or misleading disclosures
and registration eligibility

SEC Whistleblower Program

Under the SEC Whistleblower Program, whistleblowers may be eligible for monetary awards when they voluntarily provide the SEC with original information about violations of federal securities laws that leads the SEC to bring a successful enforcement action resulting in monetary sanctions exceeding $1 million.

The SEC Whistleblower Program also protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity. Furthermore, the Dodd-Frank Act protects whistleblowers from retaliation by their employers for reporting violations of securities laws.

Whistleblowers may file a tip with the SEC anonymously if they are represented by an attorney.

SEC Whistleblower Process

Washington DC SEC Whistleblower Attorneys Representing SEC Whistleblowers Nationwide

For more information about whistleblower rewards and bounties, contact the SEC whistleblower lawyers at leading whistleblower firm Zuckerman Law at 202-262-8959.

See our column in Forbes: One Billion Reasons Why The SEC Whistleblower-Reward Program Is Effective.
See our column in Going Concern: Sarbanes-Oxley 15 Years Later: Accountants Need to Speak Up Now More Than Ever.
See our post in Accounting Today: Whistleblower Protections and Incentives for Auditors and Accountants.
See our post in The Compliance and Ethics Blog: Shkreli Trial Reveals the Challenges Faced by Compliance Whistleblowers.

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Fraudulent Securities Offerings and Ponzi Scheme Whistleblower Lawyers

Fraudulent Investment Offerings

SEC Enforcement Actions Against False or Misleading Investment Offerings

Ponzi and Pyramid Schemes

How to Spot a Ponzi Scheme

How to Spot a Pyramid Scheme

SEC Enforcement Actions Against Ponzi and Pyramid Schemes

Dodd-Frank Whistleblower Program

SEC Whistleblower Bounties

Corporate Whistleblower Protection

SEC Whistleblower Attorneys

SEC Whistleblower Process

Additional Resources

CFTC Whistleblower Reward Lawyers

CFTC Whistleblower Reward Program

Anonymous Whistleblowing to the CFTC

CFTC Whistleblower Awards

Protections Against Whistleblower Retaliation

CFTC Prohibits “Gag Clauses” in Confidentiality and Employment Agreements

Experienced CFTC Whistleblower Lawyers

Violations of the CEA that Qualify for a CFTC Whistleblower Award

Spoofing

Corrupt Practices

Trading on Material Nonpublic Information

Benchmark Rates Manipulation

How the CFTC Determines Whistleblower Awards

Key Rules Governing CFTC Whistleblower Award Eligibility

Resources About CFTC Whistleblower Reward Program

Dodd-Frank Act Provision Creating CFTC Whistleblower Reward Program

Experienced SOX Whistleblower Lawyers: Tier 1 Firm

What is the Sarbanes-Oxley (SOX) corporate whistleblower protection law?

Guide to SOX Corporate Whistleblower Protection Law from SOX Whistleblower Lawyers

Who is protected under the SOX Corporate Whistleblower Protection Law?

What whistleblowing is protected under SOX, i.e., what is SOX protected activity or SOX protected conduct?

Does a whistleblower have to disclose an actual violation of law to be protected under SOX?

Are disclosures made in the ordinary course of performing one’s job duties protected under Sarbanes-Oxley?

What types of retaliation are prohibited by the Sarbanes-Oxley Act (SOX) whistleblower law?

What damages or remedies can a corporate whistleblower recover under the SOX whistleblower protection law?

What must a whistleblower prove to prevail in a SOX whistleblower retaliation case?

What is the statute of limitations under SOX?

Can a SOX Whistleblower Obtain a Reward or Bounty for Disclosing Fraud to the SEC?

Protected Whistleblowing Under the Sarbanes-Oxley Act

Prohibited Whistleblower Retaliation Under Sarbanes-Oxley

Proving Sarbanes-Oxley Whistleblower Retaliation

Relief or Damages for SOX Whistleblowers

Litigating Sarbanes-Oxley Whistleblower Cases

Additional FAQs About the Sarbanes-Oxley Whistleblower Protection Law

Experienced SOX Whistleblower Attorneys

The “Definitive and Specific” Standard for Protected Activity

The ARB Changes Course and Broadly Expands Protections Under SOX

Federal Courts Are Adopting the ARB’s Broad Interpretation of SOX Protected Conduct

ZUCKERMAN LAW

Overall

User Review

Investment Fraud Whistleblower Lawyers

SEC Targeting Investment Fraud

Whistleblowers Are Critical to Enforcement of Anti-Fraud Laws

Examples of Investment Company Act Violations

Failing to Disclose Fees, Charges, or Conflicts of Interest

Misrepresenting Investments

Failing to Maintain Adequate Written Policies and Procedures

Parking and Steering

False or Misleading Advertising

Failing to Safeguard Customer Data

Negligent Conduct Violates the IAA and Scienter is Not Required

2024 SEC Examination Priorities for Enforcement of the IAA

SEC Whistleblower Program

SEC Whistleblower Process

Washington DC SEC Whistleblower Attorneys Representing SEC Whistleblowers Nationwide

**What whistleblowing is protected under SOX, i.e., what is SOX protected activity or SOX protected conduct?**