Wells Fargo Whistleblower Prevails at OSHA
In what appears to be the largest DOL damages award in a Sarbanes-Oxley whistleblower retaliation case, today OSHA issued an order requiring Wells Fargo to pay $5.4M to a bank manager who was abruptly dismissed from his position after he reported separate incidents of suspected bank, mail and wire fraud by two bankers under his supervision.
In addition to reinstating the employee and clearing his personnel file, Wells Fargo has been ordered to fully compensate him for lost earnings during his time out of the banking industry. Back pay, compensatory damages, and attorneys’ fees were together calculated at about $5.4 million. OSHA’s press release announcing the order notes the whistleblower has not been able to find work in the banking industry since 2010.
Significantly, this whistleblower also reported his concerns to the bank’s ethics hotline. During former Wells Fargo CEO John Stumpf’s Congressional testimony, he stated that Wells Fargo has a strong compliance program and that employees are “encouraged to raise their hands” and report illegal activity. But apparently this whistleblower’s experience contacting the hotline suggests that doing so was not a good career move.
In November 2016, Wells Fargo announced that it was changing how it handles whistleblower complaints.
Sarbanes-Oxley Protected Whistleblowing
Whistleblowers are protected under the Sarbanes-Oxley Act for complaining about conduct that they reasonably believe violates federal criminal prohibitions against:
- bank fraud mail fraud, or wire fraud;
- any rule or regulation of the Securities and Exchange Commission (“SEC”);
- or any provision of federal law relating to fraud against shareholders.
To prevail under SOX’s whistleblower provision, an employee must prove by a preponderance of the evidence that (1) she engaged in protected activity; (2) the employer knew that she engaged in the protected activity; (3) she suffered an unfavorable personnel action; and (4) the protected activity was a contributing factor in the unfavorable action.
A prevailing SOX whistleblower can recover:
- lost wages and benefits;
- reinstatement; and
- special damages, which includes emotional distress, impairment of reputation, personal humiliation, and other non-economic harm resulting from retaliation.
There is no cap on special damages under SOX, and some state whistleblower protection laws enable whistleblowers to recover punitive damages.
To learn more about corporate whistleblower protection, see the Sarbanes Oxley Whistleblower Protection FAQ.
Recent Sarbanes-Oxley Wins at Trial
Sarbanes-Oxley whistleblowers can try their cases before juries, and recently some SOX whistleblowers have obtained substantial jury verdicts.
Most recently, on February 3, 2017, California jury rendered a verdict in favor of former Bio-Rad Laboratories Inc. General Counsel Sanford Wadler in his whistleblower retaliation lawsuit. Wadler worked as GC at Bio-Rad for approximately 25 years. He blew the whistle internally by reporting potential violations of the Foreign Corrupt Practices Act (“FCPA”). Bio-Rad investigated Wadler’s disclosures and concluded that there was no evidence of either a violation or an attempted violation of the FCPA. In June 2013, Bio-Rad terminated Wadler’s employment due to alleged poor work performance and behavior.
After a trial, the jury awarded Wadler $11 million. About $3 million of the award is for back pay and the remaining amount is for punitive damages. Because Wadler’s suit includes a claim under the DFA, backpay will likely be doubled.
In August 2015, a New York federal jury awarded $1.6 million in compensatory damages to a whistleblower in a SOX retaliation lawsuit. Progenics Pharmaceuticals, Inc. (“Progenics”), employed Julio Perez as a senior manager of pharmaceutical chemistry. Perez worked with representatives from Progenics and another pharmaceutical company, Wyeth Pharmaceuticals Division (“Wyeth”), to develop Relistor, a drug that treats post-operative bowel dysfunction and opioid-induced constipation.
Perez saw a confidential memo from Wyeth executives to Progenics executives. Contrary to the companies’ public statements, the memo stated that Relistor underperformed during the second phase of clinical trials and did not warrant a third phase of trials. The Wyeth memo specifically stated, “Do not pursue immediate initiation of Phase 3 studies with either available oral tablets or capsule formulations.”
On August 4, 2008, Perez disclosed his belief to Progenics executives that the company was “committing fraud against shareholders since representations made to the public were not consistent with the actual results of the relevant clinical trial, and [Plaintiff] think[s] this is illegal.” See Perez v. Progenics Pharm., Inc., 965 F. Supp. 2d 353, 359 (S.D.N.Y. 2013) (alterations in original). The next day, Progenics’s General Counsel questioned Perez about the confidential Wyeth memo. Progenics then terminated Perez’s employment, claiming he had refused to reveal how he had obtained the Wyeth memo.
Perez brought suit under SOX. Progenics claimed that it terminated Perez’s employment because he refused to explain how he got the memo, which Perez denied. Though the memo’s intended recipients denied giving Perez a copy, Perez argued that the memo was distributed widely within Wyeth and that he had not “misappropriated” it.
OSHA did not substantiate Perez’s complaint, and so Perez removed his SOX claim to federal court in November 2010. The matter was hard fought, but the jury decided in favor of Perez and attributed the full amount of the $1.6 million verdict to compensatory damages. The jury’s willingness to make a large award absent substantial economic loss is significant because the whistleblower provision of SOX places no cap on compensatory damages.
Following extensive post-trial briefing, the court also awarded Perez more than $2.7 million for front pay through retirement.
As another example, on March 5, 2014, a California jury awarded $6 million to Catherine Zulfer in her SOX whistleblower retaliation action against Playboy, Inc. (“Playboy”). Zulfer v. Playboy Enters. Inc., JVR No. 1405010041, 2014 WL 1891246 (C.D. Cal. Mar. 5, 2014). Zulfer, a former accounting executive, alleged that Playboy had terminated her in retaliation for raising concerns about executive bonuses to Playboy’s chief financial officer (“CFO”) and chief compliance officer (“CCO”). She contended that she had been instructed by Playboy’s CFO to set aside $1 million for executive bonuses that had not been approved by the board of directors. Zulfer refused to carry out this instruction, warning Playboy’s General Counsel that the bonuses were contrary to Playboy’s internal controls over financial reporting. After Zulfer’s disclosure, the CFO retaliated by ostracizing Zulfer, excluding her from meetings, forcing her to take on additional duties, and eventually terminating her employment. After a short trial, a jury awarded Zulfer $6 million in compensatory damages and also ruled that Zulfer was entitled to punitive damages. Id. Zulfer and Playboy reached a settlement before a determination of punitive damages. The $6 million compensatory damages award is the highest award to date in a SOX anti-retaliation case.
The Ninth Circuit also recently affirmed a SOX jury verdict awarding $2.2 million in damages, plus $2.4 million in attorney’s fees, to two former in-house counsel. Van Asdale v. Int’l Game Tech., 549 F. App’x 611, 614 (9th Cir. Sept. 27, 2013). Shawn and Lena Van Asdale, both former in-house counsel at International Game Technology (“IGT”), alleged that they had been terminated in retaliation for disclosing shareholder fraud related to IGT’s merger with rival game company Anchor Gaming (“Anchor”). Specifically, the Van Asdales alleged that Anchor had withheld important information about its value, causing IGT to commit shareholder fraud by paying above market value to acquire Anchor. Van Asdale v. Int’l Game Tech., 577 F.3d 989, 992 (9th Cir. 2009). When the Van Asdales discovered the issue, they brought their concerns about the potential fraud to their boss, who had served as Anchor’s general counsel prior to the merger. IGT terminated both plaintiffs shortly thereafter.
These recent wins highlight the importance of the removal or “kick out” provision in SOX, which authorizes SOX whistleblowers to remove their claims from the DOL to federal court for de novo review 180 days after filing the complaint with OSHA. Although SOX does not authorize punitive damages, a SOX complainant in federal court can add claims for which punitive damages can be recovered. For example, when Zulfer and the Van Asdales removed their SOX claims to district court, they added a common-law claim of wrongful discharge in violation of public policy.