Whistleblower Protections for SEC Whistleblowers
When whistleblower approach us to make a disclosure to the SEC, they often ask whether they will be protected against retaliation. Fortunately, the SEC has made it a high priority to protect whistleblowers against retaliation, and there are several options available under federal and state law to redress retaliation. We have been representing whistleblowers at the SEC for more than a decade, even before the enactment of the Dodd-Frank Act.
Our team of seasoned whistleblower attorneys, including two former senior officials at the U.S. Office of Special Counsel and a licensed CPA and CFE, understand the risks that our clients take to do the right thing and take measures to protect them from retaliation. And our trial-tested whistleblower lawyers are prepared to go the distance if any of our clients experience retaliation.
For a confidential consultation, call us today at 202-262-8959.
Dodd-Frank Prohibition Against SEC Whistleblower Retaliation
The whistleblower protection provision of the Dodd-Frank Act prohibits retaliation against a whistleblower for lawful actions taken by a whistleblower:
- in providing information to the Commission in accordance with this section;
- in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information; or
- in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. [§§] 7201 et seq.), this chapter, including section 78j-1(m) of this title, section 1513(e) of Title 18, and any other law, rule, or regulation subject to the jurisdiction of the Commission.
15 U.S.C. § 78u-6(h)(1)(A). A prevailing whistleblower can secure reinstatement and recover double back pay and compensation for litigation costs, expert witness fees, and reasonable attorneys’ fees.
SEC Enforcement of Dodd-Frank Anti-Retaliation Provision
The SEC has taken enforcement action for retaliation against a whistleblower. On September 29, 2016, the SEC ordered International Game Technology (“IGT”) to pay a $500,000 penalty for terminating the employment of a whistleblower because he reported to senior management and to the SEC that the company’s financial statements might be distorted. See Exchange Act Release No. 78991 (Sept. 29, 2016). During an internal investigation into the whistleblower’s allegations, IGT removed him from opportunities that were integral to his ability to perform his job successfully. IGT then fired the whistleblower the same day as the internal investigation concluded that IGT’s cost-accounting model was appropriate and did not cause its financial statements to be distorted. The whistleblower was protected under the SEC whistleblower program, despite being mistaken, because he reasonably believed that IGT’s cost-accounting model constituted a violation of federal securities laws.
The action against IGT was the SEC’s first standalone retaliation case. However, it is consistent with a 2014 enforcement action that indicated, for the first time, that retaliating against a whistleblower can result not only in a private suit brought by the whistleblower but also in a unilateral SEC enforcement action. On June 16, 2014, the SEC announced that it was taking enforcement action against Paradigm Capital Management, Inc. (“Paradigm”), a hedge fund advisory firm, for engaging in prohibited principal transactions and for retaliating against the whistleblower who disclosed the unlawful trading activity to the SEC. See Exchange Act Release No. 72393 (June 16, 2014). This was the first case in which the SEC exercised its authority under Dodd-Frank to bring enforcement actions based on retaliation against whistleblowers.
According to the order, Paradigm retaliated against its head trader for disclosing, internally and to the SEC, prohibited principal transactions with an affiliated broker-dealer while trading on behalf of a hedge fund client. The transactions were a tax-avoidance strategy under which realized losses were used to offset the hedge fund’s realized gains.
When Paradigm learned that the head trader had disclosed the unlawful principal transactions to the SEC, it retaliated against him by removing him from his position as head trader, changing his job duties, placing him on administrative leave, and permitting him to return from administrative leave only in a compliance capacity, not as head trader. The whistleblower ultimately resigned his position.
Paradigm settled the SEC charges by consenting to the entry of an order finding that it violated the anti-retaliation provision of Dodd-Frank and committed other securities law violations; agreeing to pay more than $1 million to shareholders and to hire a compliance consultant to overhaul their internal procedures; and entering into a cease-and-desist order.
The SEC’s press release accompanying the order includes the following statement by Enforcement Director Andrew Ceresney: “Those who might consider punishing whistleblowers should realize that such retaliation, in any form, is unacceptable.” The Paradigm enforcement action suggests that whistleblower retaliation can result in liability far beyond the damages that a whistleblower can obtain in a retaliation action and that retaliation can invite or heighten SEC scrutiny.
Sarbanes-Oxley Retaliation Protection for SEC Whistleblowers
To succeed on her Sarbanes-Oxley retaliation claim, the whistleblower must show by a preponderance of the evidence that
- she had engaged in protected whistleblowing activity;
- the company was aware of her protected activity;
- she suffered an unfavorable personnel action; and
- her protected activity was a “contributing factor” in the unfavorable action.
“Contributing factor” causation is a light burden that can be proven by showing that protected activities tended to affect in any way the decision to take the adverse action.
Once the whistleblower makes that showing, the company can avoid liability only by proving by clear and convincing evidence that it would have taken the same adverse action even in the absence of the protected activity.
Zuckerman Law has represented CEOs, CFOs, in-house counsel, partners at audit firms and other senior professionals in high-stakes whistleblower matters. Drawing on our substantial experience representing corporate whistleblowers, we have published a free guide to SOX titled Sarbanes-Oxley Whistleblower Protection: Robust Protection for Corporate Whistleblowers:
Section 1985 Remedy for Conspiracy to Interfere with Civil Rights of SEC Whistleblowers
At-will employees retaliated against by their employers for whistleblowing and participating in a federal court proceeding can file a claim under 42 U.S.C. § 1985(2). This provision prohibits conspiracies to intimidate or retaliate against parties, witnesses or jurors testifying or participating in federal court proceedings. Under 42 U.S.C. § 1985(2), a victim of intimidation or retaliation who suffers injury to “his person or property” may be able to recover damages against the perpetrators of the conspiracy.
In Haddle v. Garrison, 525 U.S. 121 (1998), Michael Haddle cooperated in a criminal investigation against his employer, Healthmaster, Inc.. Respondents Jeanette Garrison and Dennis Kelly of Healthmaster were indicted for Medicare fraud. Haddle was subpoenaed to testify before the grand jury, though he did not actually testify in the proceeding due to time constraints. He was also expected to serve as a witness in the criminal trial against his employer. Garrison, Kelly and another Healthmaster officer conspired to have Haddle fired in retaliation for cooperating with the proceeding and to intimidate him. Haddle then filed suit under 42 USC § 1985(2). The district court dismissed the suit and U.S. Court of Appeals for the Eleventh Circuit affirmed, agreeing with respondents that Haddle had not suffered an injury because an at-will employee does not have a constitutionally protected interest in continuous employment.
A unanimous U.S. Supreme Court rejected the notion that to state a claim for damages under 42 USC § 1985(2), the claimant must have suffered injury to a “constitutionally protected property interest.” The Supreme Court reasoned that the Eleventh Circuit’s holding is at odds with the purpose of the statue, which aims to provide redress to witnesses who face intimidation or retaliation for participating in federal court proceedings. According to the Supreme Court, the focus of the statute is not deprivation of property for the purposes of the Due Process Clause, but rather the harm the victim suffers as a result of the conspiracy to intimidate or retaliate. Id. at 125. The Court interpreted the “injured in his person or property” in the context of tort law, which recognizes third-party interference with at-will employment as a type of intentional interference with contractual relations and intentional interference with prospective contractual relations. Id. at 126.
By resolving the split between the Eleventh, First and Ninth Circuits, Haddle establishes that conspiring to terminate an employee’s at-will employment constitutes injury to person or property under 42 U.S.C. § 1985(2). This provides retaliated against whistleblowers with a way to hold their employees responsible for their retaliatory actions.
RICO Prohibition Against SEC Whistleblower Retaliation
Section 1107 of SOX, 18 U.S.C. § 1513(e), criminalizes whistleblower retaliation: “Whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing a law enforcement officer any truthful information relating to the commission or possible commission of any federal offense, shall be fined under this title, imprisoned not more than 10 years, or both.” Section 1813(e) is a predicate offense under the Racketeer Influenced and Corrupt Organizations Act (RICO), and therefore RICO can provide a private right of action to a whistleblower who suffers retaliation for reporting a criminal securities law violation to the SEC. This can be a potent claim because a whistleblower who wins a RICO suit based on violation of SOX as the predicate offense “shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney’s fee.” 18 U.S.C. § 1964(c).
In DeGuelle v. Camilli, 664 F.3d 192 (7th Cir. 2011), DeGuelle, a tax employee of S.C. Johnson & Son, Inc. (“SCJ”), was terminated after reporting an alleged tax scheme to his employer and federal agencies. Over an eight year period beginning in 2001, DeGuelle relayed a series of concerns regarding SCJ tax practices to Daniel Wenzel, Global Tax Counsel of SCJ. Wenzel directed DeGuelle to alter or destroy documents to avoid detection of a tax issue that DeGuelle brought to Wenzel also instructed DeGuelle and another employee to fabricate a business transaction in order to exploit accounting rules for the company’s benefit. DeGuelle finally met with Camilli, Director of Human Resources, to discuss that Wenzel was creating a hostile work environment. DeGuelle also spoke with Gayle Kosterman who informed DeGuelle that the company hired a law firm to investigate his tax fraud allegations and DeGuelle spoke with attorneys from the firm.
Wenzel told DeGuelle to keep his complaints about the tax department within the department, instead of taking them to human resources. Wenzel made disparaging comments towards DeGuelle in front of other employees and acted aggressively towards him. DeGuelle received a negative performance review, which was conducted off-cycle and at odds with the award he received earlier that year recognizing his stellar performance. On September 10, 2008, DeGuelle and Camilli met again to discuss DeGuelle’s safety concerns relating to Wenzel’s behavior. Later that month, DeGuelle and Wenzel had another verbal altercation and DeGuelle received a negative review from Wenzel. DeGuelle spoke with Camilli alleging that the negative review was in retaliation for his whistleblowing, which she said she would investigate. In November, DeGuelle contacted Camilli in writing to inform her that if the company did not take action, he would contact state or federal authorities regarding the retaliation. On December 18, 2008 DeGuelle was informed that the negative review was retaliatory and would be revoked. DeGuelle was directed to drop his tax fraud complaints, but DeGuelle said he would file a whistleblower complaint with the Department of Labor. The company offered a salary increase and offered to pay part of his attorney fees if he signed a confidentiality agreement and release of claims. Instead, on December 18, 2008, DeGuelle filed a complaint under SOX with the Department of Labor, attaching tax documents, financial statements and internal communications to his complaint. In January 2009, DeGuelle met with Kosterman to withdraw his salary request, fearing that it could be viewed as an attempt to profit from the company’s tax fraud. On February 17, 2009, the DOL determined that SCJ was not a covered entity under SOX. Id. at 197.
On March 10, 2009 SCJ sent another fraudulent tax return to the IRS. On March 19, 2009 DeGuelle sent a memorandum detailing his concerns to SCJ counsel, after which Kosterman offered him a year’s salary if he were to resign and signed a confidentiality agreement and released all claims. On April 9, 2009, SCJ began investigating DeGuelle for disclosing confidential company documents. DeGuelle met with Camilli and other investigators and denied disclosing documents, but admitted that he attached them to the DOL complaint, asserting that Camilli was aware of those disclosures. After that meeting, Kosterman and another employee placed DeGuelle on administrative leave, ultimately terminating him for taking and disclosing confidential business documents. SCJ filed suit in Racine County Circuit court seeking recovery of SCJ property and confidential information and for breach of contract and conversion. Following the suit, SCJ made defamatory statements about DeGuelle in the media. DeGuelle then filed suit in federal court alleging multiple claims, including RICO violations. Id. at 198.
The district court dismissed the RICO claims, holding that the tax fraud and retaliation are unrelated offenses and thus do not form a pattern of racketeering activity. The district court also reasoned that since by the time the retaliation occurred, the government was already aware of alleged tax fraud, the predicate offenses were not the proximate cause of DeGuelle’s injuries. The Seventh Circuit Court of Appeals reversed, holding that “[r]etaliatory acts are inherently connected to the underlying wrongdoing exposed by the whistleblower… Accordingly, we believe a relationship can exist between § 1513(e) predicate acts and predicate acts involving the underlying cause for such retaliation.” Id at 201. The court determined that despite SCJ officials’ attempts to investigate DeGuelle’s concerns and protect him from retaliation, SCJ can still be held liable for retaliatory termination. The court also noted that a whistleblower does not have to show that the same officials participated in both the crime and the retaliation.
Following DeGuelle, in Simkus v. United Airlines, No. 11 C 2165, 2012 WL 3133603, (N.D. Ill. July 31, 2012), Simkus brought a suit against United Airlines under RICO. Simkus alleged two predicate acts in his civil RICO suit that occurred within a ten year period, mail and wire fraud related to United providing Simkus with incorrect information regarding his stock allocation in 2006 and retaliation against Simkus in violation of SOX for reporting asbestos violations to the Occupational Health and Safety Administration (OSHA). The court found that these two acts failed the “continuity plus relationship” test. Unlike the alleged tax fraud and retaliation committed by SCJ, there was no relationship between the two acts alleged by Simkus. Id. at *3-4.
The Seventh Circuit’s holding in DeGuelle illustrates how a whistleblower who has been retaliated against can use RICO against an employer. In order to successfully plead a RICO case, the plaintiff must report a violation of federal law to law enforcement. Internal reporting or violations of state or local law will not suffice. To prevail the whistleblower must also allege a second predicate act that is related to the act of retaliation under SOX.
 This case was ultimately dismissed on remand and again on appeal, due to collateral estoppel relating to the judgement in the state court case filed by SCJ, in which DeGuelle represented himself pro se, failing to include affidavits in his response to SCJ’s motion for summary judgment. See DeGuelle v. Camlli 724 F. 3d 9ss (7th Cir. August 1, 2013).
Breach of Contract Claim Arising from SEC Whistleblower Retaliation
An employer’s breach of an anti-retaliation policy in a Code of Ethics can potentially give rise to a breach of contract claim, although the law varies by state.
In early 2015, a federal district court held that an employer’s anti-retaliation policy created legally enforceable rights. See Leyden v. Am. Accreditation Healthcare Comm’n, 83 F. Supp. 3d 241, 247–48 (D.D.C. 2015). In Leyden, the trial court held that the plaintiff had a valid claim based on the employer’s alleged violation of its internal anti-retaliation policy. The court relied on law construing whether employee handbooks created implied contractual rights.
In Leyden, the plaintiff was the Chief Accreditation Officer at the American Accreditation Healthcare Commission, a nonprofit offering accreditation and certification programs to healthcare entities. The defendant had an anti-retaliation policy, which stated: “No URAC employee who in good faith reports any Improper Activities in accordance with this policy shall suffer, and shall be protected from threats of harassment, retaliation, discharge, or other types of discrimination.” The plaintiff voiced concerns that new management was mistreating female executives and that two board members were engaged in conduct that she thought jeopardized the organization’s independence. The defendant then terminated the plaintiff’s employment.
The defendant moved to dismiss the complaint, arguing in relevant part that the anti-retaliation policy did not create contractual rights. Even if it did, the defendant contended, it had disclaimed any such rights in its employee handbook.
However, the court held that the anti-retaliation policy created an implied contract. Id. The court began by reviewing Strass v. Kaiser Foundation Health Plan, a case holding that an employee handbook created an implied contract. Id. at 247 (citing Strass v. Kaiser Found. Health Plan, 744 A.2d 1000 (D.C. 2000)). The court discussed how a manual could create rights, and how an employer could effectively disclaim those rights. Id. The court also rejected the defendant’s argument about the disclaimer, noting that a disclaimer that was “rationally at odds” with the other language in the document may not cut off an implied contract. Id.
In finding an implied contract, the court focused on the employer’s invitation to report “Improper Activities” internally and on the language of the anti-retaliation policy. Id. The court also concluded that the employer’s disclaimer, which was found in a different document, was rationally at odds with the anti-retaliation policy. Id. The reasoning in Leyden may be persuasive in other jurisdictions and provide an important remedy to whistleblowers that are not covered under federal or state whistleblower protection statutes.
SEC Whistleblower Law Firm Protecting SEC Whistleblowers from Retaliation
The whistleblower attorneys at leading whistleblower law firm Zuckerman Law have extensive experience representing SEC whistleblowers and protecting whistleblowers against retaliation. For a free initial consultation, call us at 202-262-8959 or click here.
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- 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 2017, Washingtonian magazine named two of our attorneys top whistleblower lawyers.
- Both Eric Bachman and Jason 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.
- Firm Principal Jason Zuckerman was recognized by Washingtonian magazine as a “Top Whistleblower Lawyer” in 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. is rated 10 out of 10 by Avvo, based largely on client reviews, and rated AV Preeminent® by Martindale-Hubbell based on peer reviews.
- The firm has published extensively on whistleblower rights and protections, and regularly speaks nationwide at seminars and continuing legal education conferences. We blog about new developments in whistleblower law at the Whistleblower Protection Blog.
- Eric Bachman and Jason Zuckerman served in senior positions at the U.S. Office of Special Counsel, the federal agency charged with protecting whistleblowers in the federal government. At OSC, they oversaw investigations of whistleblower claims and obtained corrective action or relief for whistleblowers.
Sarbanes-Oxley Protection for SEC Whistleblowers
Qualifying for a SEC Whistleblower Award