CHAPTER § 8.03 Whistleblower Protection Under the Dodd-Frank Act
| Jurisdiction | United States |
§ 8.03 Whistleblower Protection Under the Dodd-Frank Act
[1] Introduction
In addition to expanding whistleblower protections under SOX, the Dodd-Frank Act created a separate whistleblower program relating to securities-law violations regulated under the U.S. Securities and Exchange Commission ("SEC").99 The "core objective" of Dodd-Frank's "robust whistleblower program [under Section 922] . . . is to motivate people who know of securities law violations to tell the SEC."100
Section 922 affords covered whistleblowers both incentives and protection.101 First, it creates an award program for whistleblowers who voluntarily provide original information to the SEC that leads to the successful enforcement of a covered judicial or administrative action.102 A qualifying whistleblower is entitled to a cash award of 10 to 30 percent of the monetary sanctions collected in the enforcement action.103 Second, it prohibits an employer from discharging, demoting, suspending, threatening, harassing, or otherwise discriminating against a covered whistleblower.104 Unlike SOX, an employee claiming retaliation under Section 922 can bring an action directly in federal court, and can take advantage of a longer statute of limitations and double back pay.105 The SEC has issued regulations setting forth Section 922's whistleblower program and the procedures for obtaining an award.106
[2] Anti-Retaliation Provision
[a] Definitions
[i] Covered Employee
A whistleblower under Section 922 is "any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the [SEC], in a manner established, by rule or regulation, by the [SEC]."107
In 2018, the Supreme Court resolved a circuit split and held that whistleblowers must report wrongdoing to the SEC to be protected under the anti-retaliation pro-vision.108 In doing so, the Supreme Court invalidated the SEC's own rule extending protection under Dodd-Frank's anti-retaliation provision to whistleblowers who only report internally.109 Thus, unlike a SOX whistleblower, an individual who only reports wrongdoing internally is not protected under Section 922's anti-retaliation provision.110
[ii] Covered Employer
Although Section 922 does not define employer,111 it has been interpreted broadly to cover both public and private employers.112 At least one court has held that an individual director can be liable for retaliation under Section 922.113
[iii] Protected Conduct
Protected activity means:
• Providing information to the SEC in accordance with the whistleblower program under Section 78u-6;
• Initiating, testifying in, or assisting in any investigation or covered judicial or administrative action of the SEC based on or related to such information; or
• Making disclosures that are required or protected under a law, rule, or regulation under the SEC's jurisdiction, including SOX.114
[iv] Reasonable Belief
A whistleblower must have a "reasonable belief that the information [he or she] [is] providing relates to a possible securities law violation . . . that has occurred, is ongoing, or is about to occur."115 Reasonable belief includes both subjective and objective components. In other words, the employee must actually believe the information reflects a possible violation, and the belief must be one that a similarly situated employee may reasonably possess.116
[v] Adverse Action
Prohibited retaliatory acts include discharge, demotion, suspension, threats, harassment, or any other action that discriminates against a whistleblower in the terms and conditions of employment.117 At least one court has applied the same standard for determining whether an action is adverse under Title VII anti-retaliation claims118 to whistleblower claims under Section 922; in other words, the analysis turns on whether the action might "dissuade a reasonable worker" from making or supporting a charge against the employer.119
[b] Civil Action
[i] Direct Action; SEC Action
A whistleblower may file an action directly in federal district court.120 Unlike SOX, there is no requirement to first file a complaint with an agency and exhaust administrative remedies. The SEC may also bring an enforcement action,121 and in 2016 the agency fined an employer $500,000 for violating Section 922's anti-retaliation provision.122
[ii] Timing
In contrast to SOX's 180-day statute of limitations, an action under Section 922 must be filed within 6 years after the date on which the retaliation occurs or within 3 years after the date when "facts material to the right of action are known or reasonably should have been known by the employee," but not more than 10 years after the date of the violation.123
[iii] Relief
Section 922 expressly provides for: (1) reinstatement with the same seniority status that the individual would have had but for the retaliation; (2) double back pay with interest (only backpay is available under SOX); (3) litigation costs; and (4) expert-witness and reasonable attorneys' fees.124 Punitive damages are not available,125 and several courts have held that non-economic compensatory (i.e., emotional-distress) damages are not recoverable.126
[iv] Jury Trial
Section 922 is silent as to whether there is a right to a jury trial. Several courts have held that a jury trial is not available.127
[c] Arbitration
Section 922 is silent as to whether arbitration is available to whistleblowers. The majority of courts that have addressed the issue have held that arbitration is available.128
[3] Bounty Provision
[a] Award Program
The whistleblower-award program was created to provide monetary incentives for individuals to report possible violations of federal securities laws to the SEC. The provision impacts both public and private companies as there are a number of ways in which a private company can violate the federal securities laws (e.g., seeking investors). Eligible whistleblowers are entitled to an award of between 10 and 30 percent of the monetary sanctions collected in covered actions brought by the SEC and related actions brought by certain other regulatory and law-enforcement authorities.129 In March 2019, the SEC announced awards totaling $50 million to two whistleblowers whose information assisted the agency in bringing a successful enforcement action.130 At that time, the SEC had awarded approximately $376 million to 61 individuals since issuing its first award in 2012.131
[b] Definitions
[i] Whistleblower
An eligible whistleblower under the award program is a person who:
(1) voluntarily provides the SEC;
(2) with original information about a possible violation of the federal securities laws that has occurred, is ongoing, or is about to occur;
(3) that leads to a successful enforcement by the SEC of a federal court or administrative action;
(4) that results in monetary sanctions exceeding $1 million.132
A whistleblower is not required to be an employee of the company to submit information about that company.133 Only individuals can be whistleblowers; corporate entities do not qualify.134
[ii] Voluntarily Provided
Information is provided "voluntarily" if it is given to the SEC or another regulatory or law-enforcement authority before (i) the SEC requests it from the individual or the individual's lawyer, or (ii) either Congress or another regulatory or enforcement agency or self-regulatory organization asks the individual to provide the information in connection with an investigation or certain examinations or inspections.135
[iii] Original Information
"Original information" is information derived from the individual's (i) independent knowledge (facts known to the individual that are not derived from publicly available sources) or (ii) independent analysis (evaluation of information that may be publicly available but which reveals information not generally known) that is not already known by the SEC.136
[iv] Independent Knowledge
Certain information is excluded from the definition of "independent knowledge or independent analysis," including information obtained in violation of federal or state criminal law, and information obtained through an attorney-client-privileged communication or otherwise obtained in connection with legal representation, unless disclosure is permitted by the SEC's rules or applicable rules of attorney conduct.137
Additionally, individuals are not eligible for an award if they learned the information because they were...
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