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CFTC Awards $4 Million To Whistleblowers, Citing Disclosure Timing
11/19/2024On November 12, 2024, the Commodity Futures Trading Commission (“CFTC”) awarded nearly $4 million to two whistleblowers who provided information leading to a successful enforcement action. In awarding the sum, the CFTC considered the timeliness of the disclosures, ultimately granting a larger sum to the whistleblower who reported first and a lesser sum to the second whistleblower. In re of Claims for Award by [Redacted], CFTC Whistleblower Award Determination No. 25-WB-01 (Nov. 8, 2024).
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SEC Reaches Three Separate Resolutions In Continued Focus On Whistleblowers And Rule 21F-17(a)
10/01/2024In September 2024, the Securities and Exchange Commission (“SEC” or “the Commission”) resolved three separate actions against corporate entities for reaching agreements with employees, potential employees, and clients that, according to the SEC, impeded an individual’s ability to report violations of the securities laws to the Commission in violation of Rule 21F-17(a) (the “Rule”). This trio of resolutions is the latest in a series of actions focused on protecting whistleblowers and follows the SEC’s first-ever application of the Rule in January 2024 to an agreement reached with a customer or client,[1] rather than an employee, and the first-ever enforcement action by the Commodities Futures Trading Commission (“CFTC”) for alleged violations of its similar whistleblower rules. See CFTC Resolves First Action for Impeding Whistleblowers Over Objections of Two Commissioners.
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DOJ Kicks Off Whistleblower Rewards Program
08/06/2024
On August 1, 2024, the Department of Justice issued guidance outlining its Corporate Whistleblower Awards Pilot Program, which offers financial incentives to whistleblowers who bring original and truthful information regarding corporate criminal conduct to the attention of the Department. This pilot program, which was previewed in March and is described in the Department’s Program Guidance, resembles other enforcement agencies’ whistleblower rewards programs, such as that of the Securities Exchange Commission and the Commodities Futures Trading Commission.
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CFTC Resolves First Action for Impeding Whistleblowers Over Objections of Two Commissioners
06/25/2024
On June 17, 2024, the Commodity Futures Trading Commission (“CFTC” or “the Commission”) issued a groundbreaking order against an energy, metals, and minerals commodity trading company (the "Company”) registered in Singapore. The Order resolved three separate alleged violations of the Commodity Exchange Act (the “CEA”) and related CFTC regulations, and resulted in fines totaling $55 million. While the resolution primarily focused on allegations that the Company misappropriated nonpublic information and manipulated the gasoline market, the Order also encompassed the Company’s alleged interference with whistleblowers through its use of nondisclosure clauses that did not explicitly exempt disclosures to regulators. This component of the resolution, which the CFTC announced as its “First Action Against an Entity for Impeding Whistleblower Communications,” was publicly criticized by two CFTC Commissioners who suggested the Enforcement Division had enlarged the scope of Regulation 165.19(b).
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DOJ Announces Plan To Pay Corporate Whistleblowers
03/26/2024
On March 7, 2024, the Department of Justice announced a whistleblower rewards program intended to compensate individuals who assist the Department in discovering unknown significant corporate or financial misconduct with a portion of any resulting forfeiture.
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Supreme Court Rules Whistleblowers Need Not Prove Retaliatory Intent Under SOX
02/13/2024
On February 8, 2024, the Supreme Court of the United States unanimously held that whistleblower-plaintiffs need not prove that adverse employment actions were motivated by their employer’s retaliatory intent to obtain protection under the anti-retaliation provisions of the Sarbanes-Oxley Act (“SOX”). Murray v. UBS Securities, LLC, No. 22-660 (Feb. 8, 2024). This decision resolved a Circuit split and clarified the whistleblower’s burden under SOX is to prove that the protected activity was merely a contributing factor to the retaliatory act. -
Supreme Court To Review Second Circuit Decision On Whistleblower Retaliation
05/09/2023
On May 1, 2023, the United States Supreme Court granted a writ of certiorari filed by alleged whistleblower against his former employer, a financial institution, in a case that is expected to clarify when the termination of a whistleblower amounts to unlawful retaliation under the Sarbanes-Oxley Act. -
SEC Brings Enforcement Action Over Company’s Alleged Failure To Track Information About Workplace Misconduct Relevant To Risk Factor Disclosures About Employee Retention
02/14/2023
On February 3, 2023, the Securities and Exchange Commission (“SEC”) announced a settled enforcement action against video game maker Activision Blizzard Inc. (the “Company”) for an alleged failure to maintain procedures designed to collect employee complaints of workplace misconduct and analyze them for disclosure purposes. The SEC found that the lack of such procedures violated the Company’s obligation to maintain procedures designed to ensure that information required to be disclosed in the Company’s SEC reports was in fact timely reported. In addition, the SEC’s enforcement action alleged that the Company had improperly impeded former employees from communicating directly with the SEC staff about possible securities law violations by requiring those employees, through a clause in their separation agreements, to notify the Company of any requests from an administrative agency in connection with a report or complaint. Without admitting or denying the findings, the Company agreed to pay a $35 million civil penalty, but Commissioner Hester Peirce issued a spirited dissent arguing that the SEC’s allegations did not in fact amount to securities law violations. -
SEC Announces Year-End Enforcement Results, Emphasizing Record-Setting Penalty Awards
11/22/2022
On November 15, 2022, the Securities and Exchange Commission (“SEC”) released its summary of enforcement actions for the 2022 fiscal year, which ended on June 30, 2022. The SEC announced that it filed 760 enforcement actions, a nine percent increase over 2021. The actions resulted in orders of a record-breaking $6.439 billion to be paid to the SEC, including roughly $4.2 billion in penalties. The SEC noted that the high numbers reflect its “sense of urgency to protect investors, hold wrongdoers accountable and deter future misconduct in our financial markets.” -
Second Circuit Overturns $1 Million Whistleblower Award For Improper Jury Instruction
08/16/2022
On August 5, 2022, the United States Court of Appeals for the Second Circuit overturned a judgment of approximately $1 million awarded to a purported whistleblower after a jury determined in 2017 that the financial institution unlawfully terminated the employee in retaliation for his refusal to change certain aspects of his research reports related to commercial mortgage-backed securities. In narrowing the universe of alleged whistleblowers who may be entitled to relief for retaliation, the Second Circuit held that the trial judge failed to inform the jurors as to the critical burden whistleblowers bear under the Sarbanes-Oxley Act: namely, that a whistle-blower must prove that their employer intended the alleged employment action to be retaliatory. -
SEC Commissioner’s Dissent Highlights Challenges In Responding To Whistleblowers
04/19/2022
On Tuesday, April 12, the U.S. Securities and Exchange Commission (SEC) fined David Hansen, the former Chief Information Officer of NS8, Inc., a Las Vegas-based fraud detection and prevention software firm, approximately $100,000 for interfering with an employee’s ability to communicate with the SEC in violation of Rule 21F-17(a). The SEC alleged that Hansen violated the rule by restricting the employee’s access to NS8’s IT systems and monitoring his use of corporate computer systems following the employee providing a tip to the SEC about NS8’s corporate practices. In dissent, SEC Commissioner Hester Peirce said that the application of Rule 21F-17(a) was inappropriate in this case, arguing that restricting the tipster’s access to IT systems and monitoring their use did not impede their ability to communicate with the SEC and was a reasonable step in preventing unauthorized disclosure of NS8’s data to private parties and the media. -
CFTC Awards Record $200 Million To Whistleblower
10/26/2021
On October 21, 2021, the Commodity Futures Trading Commission (“CFTC”) announced it would be awarding a whistleblower its largest, publicly-announced single award under the Dodd-Frank whistleblower rewards program—nearly $200 million. The whistleblower—who sources say worked for a major financial institution—provided extensive information and documents in 2012 that prompted the CFTC, another US regulator, and a foreign regulator to bring sizable enforcement actions related to benchmark manipulation. The CFTC’s order stated that the whistleblower’s information provided “direct evidence of wrongdoing” and led to a successful enforcement action, and also assisted two other regulatory actions. The record payment, according to the CFTC, reflects recognition of “a ‘meaningful nexus’ between the information provided and the CFTC’s ability to successfully complete its investigation.” -
SEC Announces Second-Largest Whistleblower Award In Program’s History
04/20/2021
On April 15, 2021, the Securities and Exchange Commission (“SEC”) announced a joint award of just over $50 million to a pair of whistleblowers, which represents the second-largest award in the whistleblower program’s history. The SEC’s press release noted that the two recipients reported on “violations that involved highly complex transactions [that] would have been difficult to detect” without the information they provided. This $50 million award continues a record-setting pace for the whistleblower program. The SEC has now awarded over a quarter of a billion dollars to whistleblowers in the first seven months of fiscal year 2021 (“FY2021”) alone, which kicked off with an award of $114 million in October 2020—the largest in the program’s history. -
SEC’s Whistleblowing Statistics Continue To Set Records Through Pandemic
03/17/2021
Following the Securities and Exchange Commission (“SEC”) September 2020 amendments to the rules governing its whistleblower program, which we previously discussed in this newsletter, the SEC is on track to shatter its previous records of awards paid out to whistleblowers. Halfway into its fiscal year (“FY2021”), which started in October 2020, the SEC has already awarded nearly $200 million to whistleblowers, surpassing last year’s record of $175 million paid out to whistleblowers. And the awards have been sizable: At the start of FY2021, the SEC issued a record $114 million dollar award; and so far this month, the SEC has already issued two multi-million dollar awards. If this pace continues, the SEC will be on pace to award in one year the same total amount that it had awarded over the previous nine years, since the inception of the whistleblower program, combined. In terms of the number of awards paid out, the SEC is also likely to have a banner year: it has paid out 31 awards so far in FY2021, compared to 39 awards paid out last year.
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SEC Amends Its Whistleblower Award Program Rules
10/20/2020
On September 23, 2020, the Securities and Exchange Commission (“SEC”) announced that it voted to amend the rules governing its whistleblower award program. According to the SEC, the amendments are intended to provide eligible whistleblowers with greater insight into the program as well as to improve efficiencies in reviewing and processing awards. The SEC’s Office of the Whistleblower also issued staff guidance for determining award amounts for eligible whistleblowers.
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Issuer And CEO Charged By The SEC With Fraud And Whistleblower Protection Law Violations For Allegedly Impeding Investor Complaints
11/12/2019
On November 4, 2019, the Securities and Exchange Commission (“SEC”) filed an amended complaint against Collectors Café, a Nevada-based company purportedly providing online auctions for collectibles (the “Company”), and its CEO, for making false and misleading statements to investors in connection with a $23 million securities offering. SEC v. Collector’s Coffee, Inc. & Kontilai, No. 10-CV-04355 (S.D.N.Y. Nov. 4, 2019). The amended complaint added charges against defendants for alleged violations of whistleblower protection laws by conditioning the return of investor money on investors signing agreements that included provisions prohibiting them from communicating with regulatory agencies, including the SEC, about anything related to the Company.
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SEC Awards $3 Million To Two Whistleblowers Who First Made Internal Reports, Even Though Reporting To SEC Was Not “Voluntary”
06/11/2019
On June 3, 2019, the U.S. Securities and Exchange Commission (“SEC”) announced a joint award of $3 million to two whistleblowers who the SEC stated provided information that led to a successful enforcement action aimed at protecting retail investors. SEC Press Release, SEC Awards $3 Million to Joint Whistleblowers, No. 2019-81 (June 3, 2019). According to the SEC, both whistleblowers reported the alleged violations internally before reporting to the SEC. Interestingly, the Commission found that neither whistleblower was legally entitled to the award because their submissions were not “voluntary,” but the SEC relied on its discretion to issue the award regardless in an apparently conscious effort to further incentivize whistleblowing. SEC Whistleblower Award Proceeding, File No. 2019-7 (June 3, 2019).Category : Whistleblower -
SEC Awards Total Of $50 Million To Two Whistleblowers In A Single Action, While Denying Five Other Claimants
04/09/2019
On March 26, 2019, the SEC announced two multi-million dollar awards to whistleblowers who made reports of misconduct that led to a successful enforcement action after denying claims of five other whistleblowers in the same case (only two appealed the preliminary determination denying their application). SEC Press Release, SEC Awards $50 Million to Two Whistleblowers, No. 2019-42 (Mar. 26, 2019). One whistleblower received $37 million, which represents the third-largest SEC whistleblower award in history, while the other whistleblower received a $13 million award, a difference apparently based on the speed with which each reported the misconduct to the SEC and the relative value of their information. These significant awards continue a trend of rising awards by the SEC, and the number of whistleblowers in the action highlights the degree to which the SEC has successfully incentivized whistleblowers. Since 2012, the SEC has now awarded approximately $376 million to 61 whistleblowers, with an average award of over $6 million.Category : Whistleblower -
SEC, Under New Safe Harbor, Awards More Than $2.2 Million To Whistleblower Who First Reported To Another Federal Agency
04/17/2018
On April 5, 2018, the Securities and Exchange Commission (“SEC”) announced a whistleblower award of more than $2.2 million in connection with a report of misconduct. The whistleblower, a former company insider, first reported information to a federal agency other than the SEC, which in turn referred the matter to the SEC, which promptly opened an enforcement investigation. Subsequently, within 120 days of the original reporting to the other federal agency, the whistleblower reported the same information directly to the SEC. The resulting SEC enforcement action resulted in monetary sanctions, and the whistleblower received a percentage of the sanctions as an award. Despite initially reporting to another federal agency, the whistleblower received an award because he or she reported the same information to the SEC within 120 days and subsequently cooperated with the enforcement investigation.
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Record-Breaking Whistleblowing Awards Continue Incentives To Report Misconduct To The SEC
03/27/2018
On March 19, 2018, the SEC announced three multi-million dollar awards to whistleblowers in connection with reports of misconduct. SEC Press Release, SEC Announces Its Largest-Ever Whistleblower Awards, No. 2018-44 (Mar. 19, 2018). One whistleblower received $33 million, which represents the largest SEC whistleblower award in history; the two other whistleblowers will split a $50 million award. These significant awards continue a trend of rising awards by the SEC, which continues to focus on publicly incentivizing and protecting whistleblowers.
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Supreme Court Finds Dodd-Frank Does Not Protect Internal Whistleblowers
02/27/2018
On February 21, 2018, the Supreme Court unanimously held that the anti-retaliation provisions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) do not cover individuals who do not report violations of the securities laws to the Securities and Exchange Commission (“SEC”). Digital Realty Trust, Inc. v. Somers, No. 16-1276 (Feb. 21, 2018). Writing for the Court, Justice Ginsburg explained that Dodd-Frank explicitly defined the term “whistleblower” to include only individuals who report to the SEC and that, when a statute explicitly defines a term, courts must follow that definition. See 15 U.S.C. § 78u–6(a)(6). Respondent Paul Somers, who had only reported within his company, was therefore ineligible for Dodd-Frank’s whistleblower protections. We previously covered the Court’s skepticism of Somers’ position at oral argument. See Shearman & Sterling LLP: Government/Regulatory Enforcement, Supreme Court Oral Argument Suggests Skepticism Over SEC Rule Protecting Internal Whistleblowers from Retaliation under Dodd-Frank (Dec. 5, 2017).
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Supreme Court Oral Argument Suggests Skepticism Over SEC Rule Protecting Internal Whistleblowers From Retaliation Under Dodd-Frank
12/05/2017
On November 28, 2017, the Supreme Court heard oral arguments in Digital Realty Trust, Inc. v. Somers, No. 16-1276, a case that raises the question whether an employee who reported alleged misconduct internally, but did not make a report to the Securities and Exchange Commission (“SEC” or the “Commission”), is eligible for protections against retaliation afforded to whistleblowers by the Dodd-Frank Act of 2010 (“Dodd-Frank”). In 2011, the SEC issued a rule stating that internal whistleblowers were subject to protections under Dodd-Frank, even though the text of the statute defines “whistleblowers” as only those who reported information to the SEC. 16 C.F.R. 240.21F-2(b)(1). While a decision may remain months away, the questions from the Justices suggested considerable skepticism as to the SEC’s statutory interpretation and rulemaking process.
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California Jury Finds That Bio-Rad Violated The Whistleblower Protections Of The Sarbanes-Oxley Act By Terminating Its General Counsel
02/14/2017
On February 6, 2017, a federal jury in San Francisco, California found that Bio-Rad Laboratories, Inc., a life sciences and clinical diagnostics company, violated the Sarbanes-Oxley Act’s whistleblower protections. The violation stemmed from Bio-Rad’s decision to terminate its former General Counsel, Sanford Wadler, after he internally reported potential Foreign Corrupt Practices Act (“FCPA”) violations to the company’s audit committee. See Wadler v. BioRad Laboratories, Inc. et al., No 3:15-cv-2356 Final Verdict Form.
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SandRidge Energy Settles Claims Of Whistleblower Retaliation And Overly Restrictive Settlement Agreements
01/02/2017
On December 20, 2016, the Securities and Exchange Commission (“SEC”) filed a settled administrative proceeding against SandRidge Energy, Inc. (“SandRidge”) for allegedly using inappropriately restrictive language in employee separation agreements and for retaliating against a whistleblower, the fifth such claim the SEC brought in 2016. SandRidge, without admitting or denying the SEC’s findings, agreed to pay a $1.4 million penalty, subject to the company’s ongoing bankruptcy proceedings, to resolve the SEC’s claims. In the Matter of SandRidge Energy, Inc., Admin. Proc. File No. 3-17739 (Dec. 20, 2016).
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German Financial Regulator’s Decision To Open Whistleblower Office Highlights International Focus On Protecting Whistleblowers
07/11/2016
On July 1, 2016, Germany’s Federal Financial Supervisory Authority (“BaFin”) announced the creation of a centralized office for whistleblowers to report regulatory violations. BaFin also noted in its announcement that it believed that protecting whistleblowers was a top priority. Numerous regulators throughout the world have now created dedicated whistleblower offices, and BaFin’s efforts seem fully in line with this growing and impactful trend.
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