By Jason Kaufman
The Dodd-Frank Act created a comprehensive whistleblowing program by amending the Securities Exchange Act of 1934 to include Section 21F, entitled “Securities Whistleblower Incentives and Protection,” and establishing the “Office of the Whistleblower” to enforce its provisions. Individuals who voluntarily provide the SEC with original information that leads to a successful SEC enforcement action resulting in monetary sanctions greater than $1 million are entitled to an award of between 10 and 30 percent of the total sanctions collected. According to the SEC’s 2013 Annual Report to Congress on the Dodd-Frank Whistleblower Program, the incentives are working.
The SEC reports that since this whistleblowing program went into effect in August 2011, the number of complaints has increased each year. During Fiscal Year 2013, the SEC received 3,238 complaints from across the county and around the world, reflecting an increase over the prior fiscal year of almost every type of allegation (e.g., offering fraud, insider trading, etc.). Four whistleblowers received awards during Fiscal Year 2013, one of whom received a more than $14 million award representing the largest granted to date. In total, the SEC paid approximately $14.8 million in awards to whistleblowers in Fiscal Year 2013, and, with more than $439 million remaining in the Investor Protection Fund from which the awards are paid, further awards seem likely.
Given the easy public access to information concerning the whistleblower program and the ability to submit tips and apply for awards on-line, the broad confidentiality and anti-retaliation protections afforded to whistleblowers, and huge potential payout, it is no surprise that the program is gaining traction and whistleblower complaints are on the rise.
By John F. Fullerton III
At the Firm’s 32nd Annual Client Briefing held yesterday, I spoke on the financial services industry panel about the Dodd-Frank bounty program and the whistleblower anti-retaliation provisions of both the Dodd-Frank and Sarbanes-Oxley Acts. Here are a few takeaways from that session:
- There have been at least three reported awards from the SEC to anonymous tipsters under the Dodd-Frank bounty program, the most recent of which, earlier this month, was an award of $14 million to a whistleblower whose information led to the recovery of “substantial investor funds.”
- Employees are not required to use the internal complaint procedures established by Sarbanes-Oxley before reporting alleged wrongdoing directly to the SEC or CFTC, although they may still be encouraged to so do; however, employers may not “impede” employees from speaking directly to those agencies, such as through confidentiality policies or provisions in separation agreements. It remains to be seen how broadly “impede” is defined, whether it applies only to explicit restrictions or whether it expands to cover any actions by the employer that would arguably chill employees’ exercise of their protected right to report alleged wrongdoing directly to the SEC or CFTC.
- Dodd-Frank’s whistleblower retaliation protection is even broader and more pro-employee than the Sarbanes-Oxley provisions, including the right to sue directly in court, double damages for violations, and a statute of limitations that can range from an unusually lengthy 6 to 10 years.
- Although there is currently a split in authority among the federal courts on this issue, several decisions in the Southern District of New York here in Manhattan have held that a Dodd-Frank whistleblower is protected even if his whistleblowing is not to the SEC, as the statute seems to require, but rather, only to his supervisor or manager, as Sarbanes-Oxley allows. This effectively means that anything that violates the Sarbanes-Oxley anti-retaliation provisions also violates Dodd-Frank, and employees are free to pursue identical claims simultaneously in federal court and through the administrative complaint procedures set forth in Sarbanes-Oxley.
- In recent years, the Administrative Review Board (ARB) has issued decisions that have broadly interpreted the Sarbanes-Oxley whistleblower protection provisions in ways that make it easier for employees to sustain their claims. In one such case, the ARB ruled that the whistleblower provision protects the employees of privately-held contractors and sub-contractors of publicly-held companies, opening up an enormous pool of potential claimants against employers who might not otherwise be covered by Sarbanes-Oxley. A federal appellate court came to the opposite conclusion in a different case in May of this year. The Supreme Court granted review and will hear argument in that case on November 12, 2013. We will be reporting on that case here on this blog as soon as the decision is issued.
By: Andrew J. Sommer
San Francisco has just become the first municipality in the country to pass a law providing working parents and caregivers the “right to request” flexible or predictable work schedules. The law, which will take effect on January 1, 2014, applies to employers with 20 or more employees within the City of San Francisco. Known as the Family Friendly Workplace Ordinance, the new law allows San Francisco-based employees, after completing six months of employment, to request a flexible or predictable working arrangement so that they can assist with caregiving responsibilities for (1) a child; (2) a parent age 65 or older; or (3) a spouse, domestic partner, parent, child, sibling, grandparent or grandchild with a serious health condition.
Any employee requesting this flexible working arrangement must do so in writing, and specify the arrangement applied for, the date on which the arrangement becomes effective, the duration of the arrangement and how the request is related to caregiving. Under the ordinance, the flexible arrangement may include modified work schedules, change in start and end times, working from home and telecommuting.
The employer must meet with the employee within 21 days of receiving the request, and then respond in writing 21 days thereafter. The employer may deny the request for a “bona fide business reason” such as identifiable costs, inability to meet customer demands and insufficiency of work. Any denial must set out a bona fide business reason and notify the employee of the right to request reconsideration.
Employers are prohibited from retaliating against any employee for requesting a flexible or predictable working schedule. The San Francisco Office of Labor Standards Enforcement is supposed to publish a notice of rights under this ordinance, which qualifying employers will be required to post in the workplace. The San Francisco Office of Labor Standards Enforcement is also charged with investigating any complaints for violation of this ordinance and may initiate civil action against employers to secure compliance. While the agency may review adherence with procedural and posting requirements, it is not authorized to issue findings regarding the validity of the employer’s bona fide business reason for denying an employee’s request for a flexible or predictable working arrangement.
Companies with employees in San Francisco should become familiar with the procedural requirements of this ordinance and update their personnel policies and procedures accordingly.
By John F. Fullerton III
A New York federal district court has become the second court to hold that the Dodd-Frank anti-retaliation provision, 15 U.S.C. § 78u-6(h)(1)(a), which prohibits retaliation against a whistleblower who makes disclosures required or protected by the Sarbanes-Oxley Act, among other laws, does not apply extraterritorially. In Meng-Lin Liu v. Siemens A.G. (pdf), a judge of the Southern District of New York, consistent with a decision earlier this year by a Texas district court, held that a Taiwanese compliance officer working for a Chinese subsidiary of a German parent company, who complained within the organization of alleged violations of the Foreign Corrupt Practices Act (FCPA) occurring in China and Korea, and was subsequently discharged, could not sustain his whistleblower retaliation claim in the United States, and dismissed his complaint accordingly.
The court applied a well-settled principle of statutory analysis in finding that the Dodd-Frank Act’s silence regarding whether the Section 78u applies extraterritorially provides a “strong presumption” against its application to conduct outside of the United States. This presumption against the extraterritorial reach of the anti-retaliation provision is bolstered by the existence of another section of Dodd-Frank that expressly permits the SEC to pursue enforcement actions for certain conduct or transactions occurring outside of the United States, which would be superfluous if the entire Act applied extraterritorially. The court rejected the argument that because non-U.S. citizens working abroad for non-U.S. subsidiaries may be eligible for whistleblower bounty awards, they must therefore also be covered by the anti-retaliation provisions. The court found that the only connection with the United States – that Siemens A.G. has listed American Depository Receipts on the New York Stock Exchange, and is therefore subject to securities laws within the United States – was insufficient to overcome the requirement that there be some sign of Congressional intent for the anti-retaliation provision to apply overseas.
Observing that the similar anti-retaliation provision of Section 806 of the Sarbanes-Oxley Act also does not apply extraterritorially, the court dismissed the complaint for the additional reason that Section 806 does not “require or protect” disclosure of alleged FCPA violations, regardless of whether it applies extraterritorially. Reporting violations of the FCPA simply does not fall within the scope of conduct which constitutes protected activity under Section 806. The court also acknowledged that there is a split of authority among the federal courts regarding whether a Dodd-Frank whistleblower has engaged in protected activity if he or she only reports the misconduct internally, rather than reporting it to the SEC or other governmental agencies, but found that it did not need to resolve that issue in light of the other grounds for dismissal of the complaint.
The facts of this case weighed heavily in favor of the court’s decision, which has provided additional support for the general concept that the Dodd-Frank anti-retaliation provision does not apply extraterritorially. It remains to be seen, however, what courts might decide in a more complicated scenario in which there were additional contacts and connections with the United States.
Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) requires certain public companies to disclose how the compensation of the company’s chief executive officer (“CEO”) compares to the compensation of employees generally. The disclosure must include (i) the CEO’s annual total compensation, (ii) the median of the annual total compensation of all employees other than the CEO, and (iii) the ratio of (i) over (ii).
Like many of Dodd-Frank’s requirements, disclosure of the CEO pay ratio was not required until implementing regulations were issued. On September 18, 2013, the U.S. Securities and Exchange Commission (“SEC”) published the applicable proposed regulations.
For more information, see the Client Alert from our Executive Compensation colleagues here.
We’d like to recommend an upcoming complimentary webinar, “Addressing and Responding to Workplace Violence and Active Shooter Scenarios to Protect Your Employees” (Oct. 2, 2:00 p.m. EDT), by our Epstein Becker Green colleagues Kara M. Maciel, Susan Gross Sholinsky, and Christopher M. Locke, with Daniel Hess and Lynne Cripe of The KonTerra Group, an employee assistance program provider that regularly counsels employees undergoing stressful life events that can lead to violence.
Below is their description of the event:
Violence in the workplace can range from bullying and harassment to physical attacks to fatal mass shootings. Workplace violence has unfortunately become one of the most common forms of violence that people are likely to encounter during their lives.
This informative webinar will:
- Discuss ways of identifying the warning signs and recognizing behaviors that are precursors;
- Summarize strategies to assist with hiring, managing and firing employees;
- Present guidance on how to survive in the event their workplace is the scene of an active shooter scenario; and
- Review legal consequences of failing to take appropriate steps to avoid an incident.
To learn more about it, visit Epstein Becker Green or click here for complimentary registration.
We recommend this recent post on the Hospitality Labor and Employment Law blog: “IRS Releases Proposed Rules on Employer’s Information Reporting Requirements Under the Employer Mandate of the Affordable Care Act,” by Kara Maciel, Adam Solander, and Brandon Ge, our colleagues at Epstein Becker Green.
Following is an excerpt:
On September 5, 2013, the Internal Revenue Service (“IRS”) released two proposed rules to implement important reporting requirements under the Patient Protection and Affordable Care Act (“ACA”), which will help determine penalties under the Employer Mandate and should be of great importance to hospitality employers.
One rule would require information reporting by insurers, self-insuring employers, and other parties that provide health coverage (“minimum essential coverage”). The other rule would require employers that are subject to the employer mandate to report information to the IRS and employees regarding the minimum essential coverage they offer their full-time employees. There will be public hearings to discuss the rules on November 18 (for the proposed rule on large employer reporting) and 19 (for the proposed rule on minimum essential coverage reporting). Affected entities also have an opportunity to comment, with comments due for both rules on November 8, 2013.
Read the full post here.
A recent article in Bloomberg BNA’s Health Insurance Report will be of interest to financial services employers: “ACA’s Employer ‘Pay or Play’ Mandate Delayed – What Now for Employers?” by Frank C. Morris, Jr., and Adam C. Solander, colleagues of ours, based in Epstein Becker Green’s Washington, DC, office.
Following is an excerpt:
The past few weeks have changed the way that most employers will prepare for the employer ‘‘shared responsibility” provisions of the Affordable Care Act (ACA). Over the past year or so, employers have scrambled to understand their obligations with respect to the shared responsibility rules and implement system changes, oftentimes with imperfect information to guide their efforts to comply with ACA.
Understanding the difficulties that both employers and the health insurance exchanges or marketplaces would have, the Internal Revenue Service (IRS) on July 2 issued a press release stating it would delay the shared responsibility provisions and certain other reporting requirements for one year, until Jan. 1, 2015.
On July 9, the IRS published Notice 2013-45 (Notice), providing additional information on the one-year delay. Specifically, the following three ACA requirements are delayed:
- The employer shared responsibility provisions under Section 4980H of the Internal Revenue Code (Code), otherwise known as the employer mandate;
- Information reporting requirements under Section 6056 of the Code, which are linked to the employer mandate; and
- Information reporting requirements under Section 6055 of the Code, which apply to self-insuring employers, insurers, and certain other providers of ‘‘minimum essential coverage,” as defined by ACA.
The IRS notice clarifies that only the above three requirements are delayed. The notice does not affect the effective date or application of other ACA provisions, such as the premium tax credit or the individual mandate. Given the fact that the law itself is not delayed, the notice has raised significant issues for employers despite their being generally pleased with the mandate and penalty delay. This article will discuss the impact of the delay and some of the issues that employers should consider as a result of the delay.
Click here to download the full article in PDF format.
The attached file is reproduced with permission from Health Insurance Report, 19 HPPR 28, 7/31/13. Copyright © 2013 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com
Our Epstein Becker Green colleague Stuart M. Gerson recently commented in an article titled “4th Circuit Upholds ACA’s Employer Mandate, Says Insurance Regulation Within Commerce,” by Mary Anne Pazanowski, in Bloomberg BNA’s Health Care Daily Report.
Following is an excerpt:
A unanimous U.S. Court of Appeals for the Fourth Circuit July 11 declared the Affordable Care Act’s employer mandate a valid exercise of Congress’s power to regulate commerce under the U.S. Constitution’s Commerce Clause (Liberty University Inc. v. Lew, 4th Cir., No. 10-2347, 7/11/13).
In an opinion co-authored by Judges Diana Gribbon Motz, James A. Wynn Jr., and Andre M. Davis, the court held that the mandate is ‘‘simply an example of Congress’s longstanding authority to regulate employee compensation offered and paid for by employers in interstate commerce.”
The ruling comes in a case filed by Liberty University Inc. and two individual plaintiffs that challenged both the individual and employer mandates. Treasury Secretary Jacob Lew has been substituted as a defendant in place of former Secretary Timothy Geithner.
Stuart Gerson, a former acting U.S. attorney general who is now an attorney with Epstein Becker Green in Washington, told BNA July 11 that ‘‘there is considerable force to the Fourth Circuit’s view that health insurance decisions affect employment, which itself is a matter of interstate commerce.”
He predicted that, if the case returns to the Supreme Court—as seems likely based on a July 11 press release from the university’s attorneys—there would be four solid votes to uphold the Fourth Circuit’s ruling. But, he said, ‘‘it is difficult to predict how the chief justice and the other four conservative justices come out on this point.” He added, though, that ‘‘one must at least recognize that there is a difference between an individual’s decision not to engage in commerce and the clear commercial activity in which Liberty indisputably engages.”
Of course, Gerson said, if the conservatives on the high court vote to uphold Liberty’s challenge to the employer mandate, Chief Justice John G. Roberts Jr. ‘‘could again perform the legerdemain and create a fifth vote for affirmance by holding that the employer man- date is supportable under the tax power as was the individual mandate in NFIB. The Fourth Circuit’s alternative reasoning allows for this result.”
Our colleagues Kara Maciel, Frank C. Morris Jr., Elizabeth Bradley, and Adam Solander have posted a client advisory on the recent ACA employer mandate delay, exploring the ramifications and unresolved issues that employers should consider. Following is an excerpt:
In reaction to employers’ concerns about the many difficulties posed in efforts to comply with the Employer Mandate provisions of the Affordable Care Act (“ACA”), the Obama administration (“Administration”) announced late yesterday that it is delaying the implementation of the penalty provisions and other aspects of the shared responsibility regulations until 2015. While the delay may have been to accommodate stakeholder requests, the delay also may have accommodated the Administration in connection with its readiness to implement the Employer Mandate. This delay could be a precursor to other implementation delays as the Administration seeks to make the ACA’s implementation successful, especially in light of intense scrutiny as to implementation and an inability to amend the law in Congress.
Read the full advisory: Employer Mandate Delayed—Employers Get Welcome Relief from Penalties Until 2015, but Many Questions Remain.