Tag: Protections for Whistleblowers

The “Iron Curtain” has Fallen: A Radical Shift in Lawyers Representing Whistleblowers

Whistleblower Network News (WNN) recently revealed, for the first time, that major corporate law firms specializing in representing defendants before the U.S. Securities and Exchange Commission (SEC) have, in some cases, switched sides and are now representing whistleblowers who are turning in corporate fraudsters.  All but one of the firms identified by the SEC did not call public attention to their new-found client base – most likely because they did not want to upset their bread-and-butter corporate clients.  It appears that major corporate law firms now understand that the Dodd-Frank Act’s whistleblower reward provisions are incredibly effective in incentivizing corporate insiders to report fraud, even when those insiders are executives usually on the other side of a whistleblower issue.  Lawyers who traditionally represent whistleblowers understand that Dodd-Frank is well designed and is being professionally implemented by the SEC.  Corporate lawyers and their firms have apparently caught on to this new reality and are now representing whistleblowers.

That defense firms are now actively engaged in representing whistleblowers cannot be denied.  Lists of law firms that have prevailed in Dodd-Frank whistleblower cases, disclosed in response to Freedom of Information Act (FOIA) requests filed with the SEC, document that 9.3% of firms that have obtained rewards on behalf of whistleblowers were traditional defense firms.  These firms include some of the largest defense firms in the United States that represent numerous corporations subjected to SEC enforcement actions for violating securities laws as well as firms that have defended corporations against whistleblowers in retaliation cases.

If that statistic holds, it is clear hundreds of corporate defense firms or their attorneys are representing whistleblowers in confidential investigations.  Why are these cases still under review?  Dodd-Frank is still a young law, and the vast majority of cases have not yet resulted in formal reward determinations.  Cases often take five years or more to be finalized, and as of the end of Fiscal Year 2021 over 51,000 whistleblower cases had been filed with the SEC.  Furthermore, under the FOIA requests the SEC only released the names of law firms that prevailed in a whistleblower case.  The names of firms that did not prevail in a claim, or firms that represent whistleblowers in ongoing investigations, were not disclosed.

Time will tell whether defense firms’ representation of whistleblowers who accuse their employers (or other corporate wrongdoers) of fraud is a good or bad development.  But unique issues will arise whenever a firm that primarily generates its profits from representing corporations accused of wrongdoing switches sides and represents a whistleblower who has accused an executive of engaging in fraud.  Although such representations may be permitted under the attorney’s rules of ethics, this does not mean that such representations are always in the best interest of a lawyer’s clients.  There are inherent potential conflicts whenever a defense firm switches sides and decides to represent a whistleblower reporting major corporate crimes.

Regardless of where you stand on this issue, one thing is clear: the ethical, policy and legal implications of defense firms representing whistleblowers is a dramatic shift in legal practice and must be carefully evaluated.  Defense firms must understand that whenever they represent a whistleblower, they must zealously advocate on their behalf, even when the precedents set by their cases may be used against their corporate clients.  Likewise, whistleblowers need to be aware of the implications of choosing a lawyer whose primary practice is representing corporate crooks.  Conflicts of interest may not initially be visible but can unfold as a case progresses.

The Revelation

In August of 2022, Bloomberg Law and a draft non-peer-reviewed article published by University of Kansas Professor Alexander Platt raised the issue of which law firms represent whistleblowers.  Bloomberg and Platt obtained lists of law firms that prevailed in Dodd-Frank whistleblower cases.  They used the lists to identify a small number of firms, all of which could be classified as pro-whistleblower firms.  These firms’ practices are centered on fighting corporate fraud and speculated whether these firms were being given preferential treatment by the SEC. Neither publication offered proof of any wrongdoing.  But Platt and Bloomberg did not list all the law firms that prevailed in Dodd-Frank cases.  Significantly, neither even mentioned the fact that major defense law firms had already filed and won Dodd-Frank cases on behalf of whistleblowers.  Additionally, the two authors did not explore the special issues that could arise when firms dedicated to defending white-collar criminals quietly switch sides.

In response to Platt and Bloomberg, WNN filed its own Freedom of Information Act (FOIA) request to obtain access to the documents relied upon in the two articles.  The SEC released over 1000 pages of documents to WNN, including all its correspondence with Platt and all the records provided to Platt (and Bloomberg) that identified law firms that successfully represented whistleblowers.

On September 27, 2022, WNN revealed, for the first time, that the SEC had identified 64 law firms that successfully obtained a reward on behalf of a whistleblower.  Among those firms were six that primarily represent corporations and individuals accused of corporate crimes.  These defense firms included industry giants such as Winston & Strawn and Akin Gump.  Together, the defense firms have already obtained over $56 million in rewards on behalf of whistleblowers.  In response to the Platt, Bloomberg, and WNN FOIA requests, the SEC only identified firms that had already prevailed and obtained a reward on behalf of their clients. Approximately 50,000 cases are pending within the SEC’s reward program, and there is a long delay in processing whistleblower cases.  Therefore, one can assume that numerous other pending cases where these or other defense firms are actively representing whistleblowers that were not disclosed by the SEC.

It is important to note that the Dodd-Frank provisions only apply to large fraud cases.  No reward is available unless the SEC issues sanctions against the entity being investigated in excess of $1 million.  Thus, the cases previously targeted by the defense firms and currently under investigation by the SEC would implicate major frauds.

The defense firms identified by WNN as being listed in the SEC-released materials were:

Winston & Strawn, LLP:  Winston advertises itself as defending “companies and individuals in SEC enforcement and regulatory matters related to allegations involving securities fraud.”  But not mentioned on its webpage is that it also represented a securities law whistleblower who obtained a $2.2 million reward.

Akin Gump Strauss Hauer & Feld LLP: Akin Gump also describes its practice as representing “companies and individuals” under investigation by various regulatory agencies, including the SEC.  Akin’s attorneys obtained a Dodd-Frank reward of $800,000 award.

Haynes and Boone, LLP: This 600-lawyer defense firm’s website explained that it has “represented employers” in “whistle blowing.”  However, the SEC documents revealed the firm also represented a whistleblower who obtained a “20%” award against a corporate fraudster.

Levine Lee LLP:  Although this firm markets itself as successfully representing clients accused of violating anti-fraud laws, like the other defense firms, it has apparently started a whistleblower practice and obtained a reward of $10 million on behalf of a whistleblower.

Leader Berkon Colao & Silverstein LLP:  This defense firm prevailed in cases filed on behalf of two separate whistleblowers and had considerable success.  Their whistleblower clients obtained $15 million and $27 million in awards.

Sallah Astarita & Cox, LLC: Although this firm “regularly represents financial institutions” in “fraud” cases, the firm also represented a whistleblower who obtained a $1.8 million award.  Sallah Astarita was the only firm that listed its Dodd-Frank Act whistleblower case on its website as among the victories achieved by one of its partners.

The SEC’s Dodd-Frank Whistleblower Program

Professor Platt and Bloomberg Law criticized the SEC’s Dodd-Frank program as having a bias in favor of a small number of whistleblower-rights law firms that had employed former SEC lawyers.  However, the information revealed by WNN completely refuted this negative implication raised by Platt and Bloomberg.  Instead, the FOIA documents support a finding that the SEC program is a paradigm of fairness and openness.  The extensive correspondence between Platt and the SEC demonstrates that the Commission freely disclosed the names of the firms that had won cases while carefully balancing the confidentiality needs of the whistleblower clients.  These numbers illustrate a program open to law firms regardless of their reputation or whether they employ former government lawyers.  They also reveal a program open to working directly with whistleblowers and rewarding them even if they had no lawyer.  Not one document produced provided any evidence whatsoever of wrongdoing, bias, or unprofessionalism.  The numbers speak for themselves:

  • Over 50 pro se whistleblowers won cases on their own behalf.  This high percentage of unrepresented applicants who successfully navigated the SEC’s program is remarkable.  In other legal programs, pro se whistleblowers (and other unrepresented persons) lose the vast majority of their cases.  Not so under Dodd-Frank. This demonstrates a high level of commitment by the SEC to helping individual whistleblowers who could not afford or obtain lawyers.
  • Of the 64 law firms that prevailed in a Dodd-Frank reward claim, only 12 had hired former SEC lawyers to assist in the cases.  Thus, the vast majority of successful law firms (52 of the 64) had no “insider” connection to the SEC.   This fact demonstrates the Commission’s staff’s willingness to work closely with attorneys who had no “friends” in the agency and whose information was solely merit-based. Moreover, a significant percentage of the firms that did employ former SEC or Justice Department lawyers were the very defense firms that Bloomberg Law and Platt did not discuss or analyze.
  • The Commission’s staff demonstrated no bias against firms based on their practice areas.  The Commission’s enforcement staff and Whistleblower Office worked with law firms that were defense-based (6) and law firms that traditionally represent whistleblowers or employees in lawsuits against companies (many of the remaining 58).

The FOIA documents support a finding that the Commission’s staff is open to whistleblowers, regardless of whether they represent themselves or whether or not the firms raising the concerns have any “insider” connections.   Organizations such as the National Whistleblower Center, which regularly works with whistleblowers, have widely praised the program, as have the last three Chairs of the SEC, appointed by Presidents Obama, Trump, and Biden.  The Commission itself confirmed that as of September 2021, it returned over $1.3 billion to harmed investors based on whistleblower cases.

The Future Role of Defense Firms in Dodd-Frank Cases

The SEC cannot implement special rules that would be prejudicial to traditional defense firms that file whistleblower cases.   Likewise, whistleblowers have the right to hire counsel of their choice and, in most cases, can knowingly waive potential conflicts of interest.  But the mere fact that traditional defense firms can lawfully represent whistleblowers without violating any SEC or local Bar rules does not address the special problems that may exist when a defense firm represents a whistleblower.  For example, such representations can result in significant conflicts of interest that may not be apparent at the commencement of a case. This may result in the whistleblower’s attorneys not advocating for legal precedents that could harm their other corporate clients.

Traditional defense firms should implement internal procedures to guard against potential problems based on the obvious conflicts that can arise when they represent clients on both sides of whistleblower-disclosure cases.  More significantly, it is absolutely crucial that whistleblowers fully understand the potential for conflicts of interest when deciding on the best attorneys to hire.  Attorneys working for defense firms must clearly spell out these issues and ensure that when representing a whistleblower, their prospective client is fully aware of all the risks and limitations.

Among the rules, procedures, and practices that defense firms should implement or carefully consider are:

  1. At the very least, defense firms representing whistleblowers should identify this on their websites.  Corporate clients should know that the firm also represents whistleblowers and should be able to question counsel on these matters so they feel comfortable that no conflicts would arise.
  2. Whistleblower clients need full disclosure of how the defense firm’s primary practice may impact the representation.  This is particularly true whenever a case would require advocacy on behalf of a whistleblower that could expand legal interpretations benefiting whistleblowers.  It is hard to reconcile how a law firm defending some clients against whistleblowers can effectively argue before administrative agencies or courts of law legal precedents that could expand the rights of whistleblowers.  These expanded rights could and would ultimately not be to the advantage of corporate clients accused of wrongdoing.
  3. Similarly, defense firms need to reconcile how they can advocate for a whistleblower who engaged in tactics, such as removing documents or one-party tape recording, that their corporate clients may find offensive.  This is particularly true when the zealous representation of a whistleblower requires expanding the ability of whistleblowers to obtain evidence of wrongdoing, and the precedent this advocacy establishes may be used against the firm’s current or future corporate clients.
  4. The potential for a conflict of interest needs to be fully explored in every case.  One issue that firms and clients may not be fully aware of is how the “related action” provisions of the laws impact potential conflicts.  Once the SEC obtains a sanction of over $1 million in any case, all “related actions” become eligible for a reward.  Sanctions issued by other law enforcement or regulatory agencies based on “related” claims can form the basis of a reward.   When examining whether a conflict exists, law firms need to look beyond the SEC action and determine witnesses, parties, and issues that may be implicated in a “related action.” This determination is critical even if the related action is not based on any securities law violation.
  5. Defense firms can also explore ways to refer potential whistleblower clients to attorneys whose practices are based solely on representing whistleblowers.  These referrals would help ensure that the defense firm is not conflicted (either as a matter of ethics or marketing) and that the client can obtain the best counsel.

Conclusion: The Iron Curtain has Fallen

Whistleblower representation is entering a new world.  The “iron curtain” that formerly separated law firms that represent corporate crooks from those that represent whistleblowers has fallen. This new reality is not without serious risks to whistleblowers (and corporate clients).  Whistleblowers must be fully aware of the dangers of having a corporate law firm represent them.  Corporate law firms must institute procedures to guard against conflicts of interest and to ensure they can zealously represent whistleblowers.  Zealous representation is needed even when the precedents established in these cases may create trouble for their other client base.

At the end of the day, the fact that defense law firms are now representing whistleblowers affirms the success of Dodd-Frank.  It is an affirmation of the critical nature of the information whistleblowers provide to the government and the role of this insider information in stopping otherwise hard to detect corporate crimes.  The “iron curtain” has fallen, but it has fallen in the direction that helps whistleblowers.  It has fallen in the direction that affirms the quality of their disclosures. It refutes the often-repeated slander that whistleblowers are somehow simply disgruntled employees.

Whistleblowers are essential to ensuring fairness in the markets, holding wrongdoers accountable, and deterring future wrongdoing.  The SEC has publicly recognized this, and now leading corporate defense attorneys have quietly recognized it. Defense firms like Akin Gump, Winston and Strawn, and Hayes and Boone got it right when they advocated for paying whistleblowers substantial rewards.  Whistleblowers whose information holds corporate criminals accountable deserve large rewards. These rewards are in the public interest, and the SEC Dodd-Frank whistleblower program must be protected, enhanced and expanded.

Sources:

  1. Whistleblower Network News, “WNN Exclusive: SEC FOIA Documents Reveal Big Law Defense Firms are Confidentially Representing Dodd-Frank Whistleblowers,” (September 27, 2022)
  2. List of Law Firms that Obtained Rewards in Whistleblower Cases as of 2021
  3. List of Awards Obtained by the Six Defense Law Firms
  4. List of pro se Cases where Whistleblowers Obtained a Reward
  5. FAQ on the SEC’s Dodd-Frank Act program
  6. FAQ on Confidentiality of Dodd-Frank Act claims

Article By Stephen M. Kohn of Kohn, Kohn & Colapinto

For more criminal law and business crimes legal news, click here to visit the National Law Review.

Copyright Kohn, Kohn & Colapinto, LLP 2022. All Rights Reserved.

NAVEX Report Reveals Increase in Whistleblower Retaliation and Reporting of Misconduct

NAVEX’s 2022 Risk & Compliance Hotline & Incident Management Benchmark Report reveals an increase in internal reporting about misconduct and an increase in allegations of retaliation.  The analysis of data from 3,470 organizations that received more than 1.37 million individual reports identified the following trends (see the full report for a discussion of additional trends and analysis of the data):

  • “More actual allegations of misconduct, rather than inquiries about policies or possible misconduct. Ninety percent of all reports in 2021 were allegations of misconduct, up from 86 percent last year and hitting an all-time high since our first benchmark report more than ten years ago.”

  • “Reports about retaliation, harassment and discrimination jumped – especially retaliation. In 2021, reports of retaliation nearly doubled . . . Taken altogether, these findings suggest employees are more attuned to workplace civility issues. That would fit with external trends such as more talk about systemic racism, income inequality and political divisions; as well as increasing protection for whistleblowers and employees’ awareness of  those protections.”

  • “Substantiation rates continue to edge upward. Overall substantiation rates rose from 42 percent in 2020 to 43 percent in 2021, and up from 36 percent a decade ago. The reports substantiated most often were data privacy concerns (63 percent), environmental issues (59 percent), and confidential and proprietary information (54 percent). The reports substantiated least often were about retaliation (24 percent).”

  • “The substantiation rate for reports of retaliation also went up slightly, from 23 percent in 2020 to  24 percent in 2021 – the highest substantiation rate seen since 2016. While steady, this substantiation rate is significantly below the overall median case substantiation rate of 43 percent in 2021. These cases, though difficult to prove, warrant attention.”

  • “Reports of harassment exceeded levels from the height of the #MeToo movement.”

Corporate Whistleblower Protections

Whistleblower retaliation remains all too prevalent.  A September 14, 2022 Bloomberg article titled Whistleblower retaliation remains all too prevalent discusses how “choosing to be a whistle-blower can also be a lonely, risky road” and identifies many deterrents to speaking up – “[t]hey may be afraid of litigation, ruining their reputations, losing security clearances or facing jail time.”

Fortunately, federal and state laws afford corporate whistleblowers remedies to combat retaliation, and whistleblower reward laws incentivize whistleblowers to take the considerable risks entailed in reporting fraud and other wrongdoing to the government.  For example, the

SEC Whistleblower Program offers awards to eligible whistleblowers who provide original information that leads to successful SEC enforcement actions with total monetary sanctions exceeding $1 million. A whistleblower may receive an award of between 10% and 30% of the total monetary sanctions collected in actions brought by the SEC and in related actions brought by other regulatory or law enforcement authorities. The SEC Whistleblower Program allows whistleblowers to submit tips anonymously if represented by an attorney in connection with their tip.

What is Whistleblower Retaliation?

Whistleblower retaliation laws prohibit a broad range of retaliatory actions against whistleblowers, including any act that would dissuade a worker from engaging in protected whistleblowing.  Examples of actionable whistleblower retaliation include:

  • Terminating a whistleblower;

  • Constructively discharging a whistleblower;

  • Demoting a whistleblower;

  • Suspending a whistleblower;

  • Harassing a whistleblower or subjecting the whistleblower to a hostile work environment;

  • Reassigning a whistleblower to a position with significantly different responsibilities;

  • Issuing a performance evaluation or performance improvement plan that supplies the necessary foundation for the eventual termination of the whistleblower’s employment, or a written warning or counseling session that is considered discipline by policy or practice and is routinely used as the first step in a progressive discipline policy;

  • Placing the whistleblower on administrative leave;

  • Threatening to take an adverse action against a whistleblower;

  • Subjecting a whistleblower to a retaliatory investigation or retaliatory surveillance;

  • Suing a whistleblower for the purpose of retaliating against the whistleblower;

  • Outing a whistleblower;

  • Intimidating a whistleblower;

  • Initiating a law enforcement investigation or facilitating an employee’s detention by U.S. ICE after the employee reported a serious injury; or

  • Discriminating against a whistleblower in the terms and conditions of employment because of whistleblowing.

The DOL Administrative Review Board has emphasized that statutory language prohibiting discrimination “in any way” must be broadly construed and therefore a whistleblower need not prove that a retaliatory act had a tangible impact on an employee’s terms and conditions of employment.

What Damages Can a Whistleblower Recover in a Whistleblower Retaliation Case?

Whistleblower retaliation can exact a serious toll, including lost pay and benefits, reputational harm, and emotional distress.  Indeed, whistleblower retaliation can derail a career and deprive the whistleblower of millions of dollars in lost future earnings.

Whistleblowers should be rewarded for doing the right thing, but all too often they suffer retaliation and find themselves marginalized and ostracized.  Federal and state whistleblower laws provide several remedies to compensate whistleblowers that have suffered retaliation, including:

  • back pay (lost wages and benefits);

  • emotional distress damages;

  • damages for reputational harm;

  • reinstatement or front pay in lieu thereof;

  • lost future earnings; and

  • punitive damages.

Combating Whistleblower Retaliation: How to Maximize Your Recovery

Whistleblower protection laws can provide a potent remedy, but before bringing a retaliation claim, it is crucial to assess the options under federal and state law and develop a strategy to achieve the optimal recovery.  Key issues to consider include the scope of protected whistleblowing, the burden of proof, the damages that a prevailing whistleblower can recover, the forum where the claim would be litigated, and the impact of the retaliation claim on a whistleblower rewards claim.

Scope of Protected Whistleblowing

There is no federal statute that provides general protection to corporate whistleblowers.  Instead, federal whistleblower protection laws protect specific types of disclosures, such as disclosures of securities fraud, tax fraud, procurement fraud, or consumer financial protection fraud.  The main sources of federal protection for corporate whistleblowers include the whistleblower protection provisions of the following:

  • The False Claims Act (FCA) — protecting disclosures about fraud directed toward the government, including actions taken in furtherance of a qui tam action and efforts to stop a violation of the FCA;

  • The Defense Contractor Whistleblower Protection Act (DCWPA) — protecting whistleblowing about gross mismanagement of a federal contract or grant; a gross waste of federal funds; an abuse of authority relating to a federal contract or grant or a substantial and specific danger to public health or safety, or a violation of law, rule, or regulation related to a federal contract;

  • The Sarbanes-Oxley Act (SOX) — protecting disclosures about mail fraud, wire fraud, bank fraud, securities fraud, a violation of any SEC rule, or shareholder fraud;

  • The Dodd-Frank Act (DFA) — protecting whistleblowing to the SEC about potential violations of federal securities laws;

  • The Taxpayer First Act (TFA) — protecting disclosures about tax fraud or tax underpayment;

  • The Consumer Financial Protection Act (CFPA) — protecting disclosures concerning violations of Consumer Financial Protection Bureau rules or federal laws regulating unfair, deceptive, or abusive practices in the provision of consumer financial products or services; and

  • The Anti-Money Laundering Act (AMLA) — protecting disclosures about violations of the Bank Secrecy Act.

While most of these anti-retaliation laws protect internal disclosures (e.g., reporting to a supervisor), whistleblower protection under the DFA is predicated on a showing that the whistleblower disclosed a potential violation of federal securities law to the SEC prior to suffering an adverse action.

State law may also provide a remedy, including the anti-retaliation provisions in state FCAs.  And approximately 42 states recognize a common law wrongful discharge tort action (a public policy exception to at-will employment), which generally protects refusal to engage in illegal activity and the exercise of a statutory right.

Burden of Proof

To maximize the likelihood of winning a case (or at least getting the case before a jury), it is useful to select a remedy with a favorable causation standard (the level of proof required to link the protected whistleblowing to the adverse employment action).  SOX has a favorable “contributing factor” causation standard, i.e., the whistleblower prevails by proving that their protected whistleblowing affected in any way the employer’s decision to take an adverse action.  In contrast, the FCA and DFA require the whistleblower to prove “but for” causation, i.e., the adverse action would not have happened “but for” the protected whistleblowing (albeit there is no need to prove that it was the sole factor).

Damages and Remedies in Whistleblower Retaliation Cases

Variations in the remedies available to whistleblowers under federal anti-retaliation laws may warrant bringing more than one claim.  For example, the DCWPA authorizes an award of back pay (the value of lost pay and benefits), and the FCA authorizes an award of double back pay.  If the whistleblower’s disclosures are protected under both statutes, then the whistleblower should bring both claims.

While a prevailing whistleblower can recover back pay under both the DFA and SOX (double back pay under the former and single back pay under the latter), the DFA does not authorize special damages, i.e., damages for emotional distress and reputational harm.  In contrast, SOX authorizes uncapped compensatory damages.  Therefore, a whistleblower protected under both statutes should bring the SOX claim within the much shorter SOX statute of limitations (180 days) to recover both double back pay and special damages.

State law may also provide a remedy, and if the whistleblower can pursue both a statutory remedy and a wrongful discharge tort, the latter may offer the opportunity to seek punitive damages.

Forum Selection and Administrative Exhaustion

When selecting the optimal remedy to combat retaliation, a whistleblower should consider the forum where the claim would be tried and determine whether the claim must initially be investigated by a federal agency before the whistleblower can litigate the claim.  SOX provides an unequivocal exemption from mandatory arbitration, but Dodd-Frank claims are subject to arbitration.  Accordingly, a whistleblower protected both by SOX and Dodd-Frank should file a SOX claim within the 180-day statute of limitations to preserve the option to try the case before a jury.

Several of the corporate whistleblower protection laws require that the whistleblower file the claim initially at a federal agency and permit the agency to investigate the claim before the whistleblower can litigate the claim.  This is called administrative exhaustion, and failure to comply with that requirement can waive the claim.  In contrast, the FCA and DFA do not require administrative exhaustion.

Impact of Whistleblower Retaliation Claim on Whistleblower Rewards Claim

Another important consideration is the potential impact of a retaliation case on a qui tam or whistleblower rewards case.  Filing an FCA retaliation claim while a qui tam suit is under seal poses some risk of violating the seal, which could bar the whistleblower from recovering a relator share.  Therefore, counsel should consider filing the FCA retaliation claim under seal along with the qui tam suit.

Further, whistleblowers pursuing rewards claims at federal agencies (e.g., SEC or IRS whistleblower claims) while simultaneously pursuing related retaliation claims (e.g., a SOX or TFA claim) should assess the potential impact of the retaliation claim and the potential discoverability of submissions to the SEC or IRS on the rewards claim(s).

Although the patchwork of whistleblower protection laws fails to protect disclosures about certain forms of fraud, there are important pockets of protection.  To effectively combat retaliation, whistleblowers should avail themselves of all appropriate remedies.

Article By Jason Zuckerman and Matthew Stock of Zuckerman Law

For more criminal law / business crimes legal news, click here to visit the National Law Review.

© 2022 Zuckerman Law

Protections for Whistleblowers Who Share Company Documents

Frances Haugen, a former product manager at Facebook, recently revealed her identity as the whistleblower who reported Facebook to the U.S. Securities and Exchange Commission (SEC) and provided internal Facebook documents to Congress and to the press. Questions have arisen about what kinds of protections she and other whistleblowers have when it comes to sharing documents with government regulators, Congress, and news outlets. Whistleblowers have a number of protections that allow them to disclose documents, even those that may be deemed confidential; however, the availability of these protections depends on the nature of the documents, the scope of what the whistleblower takes from the company, and to whom she provides these documents.

Documents Related to Securities Violations

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) and the Sarbanes-Oxley Act of 2002 (SOX) provide anti-retaliation protections for whistleblowers who share information with specific recipients to report possible securities violations. The SOX anti-retaliation provision, 18 U.S.C. § 1514A, protects employees who report fraud or securities violations to (1) federal regulatory or law enforcement agencies, like the SEC; (2) to a person in the company with supervisory authority over the employee; or (3) to any Congressperson or any committee of Congress. The Dodd-Frank Act’s anti-retaliation provision, 15 U.S.C. § 78u-6(h)(1)(A), prohibits retaliation by an employer against an employee who provides information to the SEC; initiates, testifies in, or assists any SEC action or investigation; or, makes required or protected disclosures regarding securities violations. Under both laws, an employer is prohibited from discharging, demoting, threatening, harassing, or in any way discriminating against whistleblowers as it relates to their employment.

If their employer retaliates against them, whistleblowers may pursue different avenues of relief. Under SOX, whistleblowers may file a complaint with the Secretary of Labor and seek “all relief necessary to make the employee whole,” including reinstatement, back pay, and compensation for any special damages. 18 U.S.C. § 1514A(c). If dissatisfied with the outcome, the whistleblower can seek further administrative and judicial review, but first must exhaust these administrative remedies. 18 U.S.C. § 1514A(b)(2)(A). Under Section 922 of the Dodd-Frank Act, whistleblowers have a private right of action. If an employer violates this provision, the whistleblower may sue directly in federal court. If the whistleblower is successful, she would be entitled to reinstatement, two times the amount of back pay otherwise owed to her, and compensation for litigation costs and attorneys’ fees.

Relevant SEC regulations, such as Commission Rule 21F-17, 17 C.F.R. § 240.21f-17, also protect whistleblowers. This regulation prohibits employers from impeding communications with the SEC about possible securities violations, including by enforcing or threatening to enforce confidentiality agreements. This rule permits an individual to share documents, even those that the company may consider to be confidential, with the Commission in order to report possible securities violations. In Ms. Haugen’s case, according to the Wall Street Journal, Facebook has a confidentiality agreement in place that generally prohibits her from sharing proprietary information, but it allows her to communicate with regulators, Congress, and law enforcement. Other companies may have confidentiality agreements that are written more broadly, which might violate SEC Rule 21F-17.

Only the SEC can enforce this Rule 21F-17, and it has enforced it against companies with confidentiality agreements that impede an employee’s communications with the SEC. In one instance, a company had a provision in its severance agreement that required the departing employee to notify the company about any third-party disclosures. The SEC determined that the agreement violated Rule 21F-17 because it did not exempt communications with the Commission, and therefore created an impediment to a potential whistleblower’s communications with the SEC. The SEC Division of Examinations has also affirmatively reviewed companies’ documents, including compliance manuals, employment agreements, and severance agreements, to ensure that these polices are consistent with the protections afforded to whistleblowers under Rule 21F-17. Therefore, even where there are contractual prohibitions against sharing information with third parties, whistleblowers are nonetheless protected when they share internal documents with the Commission to report possible securities violations.

In addition to anti-retaliation protections, the Dodd-Frank Act created the SEC Whistleblower Program, which incentivizes individuals to come forward with information about possible securities violations. The Program offers monetary awards to whistleblowers who provide the SEC with original information leading to an enforcement action that results in over $1 million in monetary sanctions. A whistleblower’s right to seek an award under the Program cannot be waived by contract, such as a severance agreement, as the Commission concluded in a past order, because the SEC views such a prohibition as an impediment to the whistleblower’s communications with the Commission and therefore a violation of Rule 21F-17.

Documents Related to Fraud on the Government

Government contractors working in the tech industry may also be protected by the False Claims Act (FCA), 31 U.S.C. § 3729, et seq., if they report fraud on the government. The FCA prohibits the intentional presentation of false claims to the government for payment, which can include providing false information in connection with any claim for payment, and it allows private citizens to file a lawsuit on behalf of the government, known as a qui tam action. The FCA also includes an anti-retaliation provision, which prohibits retaliation against individuals who undertake “lawful acts . . . in furtherance of” a qui tam action or “other efforts to stop one or more violations” of the FCA.

In pursuing claims under the FCA, whistleblowers, known as relators in the qui tam context, may disclose documents to the government that their employers consider confidential when these documents are reasonably necessary to support the fraud allegations. For example, a court dismissed counterclaims for breach of contract alleging that an employee-whistleblower violated the confidentiality agreement by disclosing documents to the government and noted the strong public policy that protects whistleblowers from retaliation for reporting allegations of fraud to the government.[1]  However, whistleblowers must be careful not to take documents beyond those that show fraud, and relators who have indiscriminately taken large quantities of documents have not been afforded protections from claims by the employer for breach of contract.[2]

Limitations and Potential Risks of Document Disclosures

While the FCA, SOX, and the Dodd-Frank Act provide robust protections to whistleblowers who report wrongdoing to government regulators, law enforcement agencies, or Congress, these laws do not provide absolute protection. The availability of protection for taking confidential documents depends on what the whistleblower takes, how much material she takes, and to whom she gives it.

If a whistleblower has information that may be deemed attorney-client privileged, for example, she should be careful not to disclose this information to any third party and should speak with a whistleblower attorney before making such a disclosure. Similarly, disclosures made to news outlets are not afforded the same protections as disclosures made to regulators, law enforcement agencies, or Congress. Nearly a decade ago, the Ninth Circuit held that disclosures to media outlets were not protected by SOX.[3]  Whistleblower protections for disclosures made to the press vary depending on the particular state or federal law, as well as the specific context and circumstances of the disclosure,[4] so it is important to proceed cautiously and to seek the advice of a whistleblower attorney before sharing information with media outlets.

Further, if a whistleblower takes information that constitutes an employer’s trade secrets, the employer could sue for misappropriation of trade secrets. Such whistleblowers may have protection under the Defend Trade Secrets Act (the “DTSA”), which includes a safe harbor provision for whistleblowers in certain circumstances. The DTSA provides immunity from civil or criminal liability under any federal or state trade secret law for disclosure of a trade secret that is made either: (1) in confidence to government officials or to an attorney “solely for the purpose of reporting or investigating a suspected violation of law” or (2) in a complaint or other document in a legal proceeding, if that document is filed under seal. Whistleblowers may invoke this immunity when faced with an employer’s claim for misappropriation of trade secrets, but only if they disclosed the documents in one of these two circumstances.[5]

Potential whistleblowers also should consider whether their actions might violate the Computer Fraud and Abuse Act (“CFAA”) if they use their computers to access their employer’s documents to provide support for their whistleblower claims. In general, whistleblowers should not fear prosecution under the CFAA so long as they access a computer with authorization and do not obtain information located in areas on the computer to which their access is prohibited. In Van Buren v. United States, 141 S.Ct. 1648 (2021), the Supreme Court held that an individual violates the law only when she accesses information that she is prohibited from accessing. This ruling protects whistleblowers, who prior to the Court’s opinion may have faced a CFAA claim by the employer for gathering documentary evidence for the purpose of supporting a whistleblower claim even though the whistleblower had not exceeded her authorized access on the employer’s computer. Even so, the interpretation of the CFAA under Van Buren means whistleblowers should be careful not to access areas of a computer that are off limits to them (i.e., specific folders with restricted access for only certain levels of employees to which the whistleblower does not belong), regardless of whether their purpose is to gather evidence to support their whistleblower claim.

Finally, employees should understand that the whistleblower laws discussed above do not protect disclosures to the press. In the case of Ms. Haugen, it is possible that Facebook could pursue an action against her for providing internal documents to media outlets, including claims for breach of contract or misappropriation of trade secrets. KMB partner Lisa Banks spoke with CNN about these potential risks in Ms. Haugen’s case.

Conclusion

Whistleblowers like Ms. Haugen are integral to holding companies accountable and assisting state and federal agencies in investigations against companies that may have engaged in serious misconduct. Strong public policy favors allowing whistleblowers to raise complaints without fear of retaliation from their employers. Whistleblowers have a number of protections available to them if they share documents with government regulators, law enforcement, or Congress, yet they should proceed cautiously and consult with an attorney before disclosing documents to the press. An experienced whistleblower lawyer can assist employees in understanding the scope of their rights and how to proceed in a manner that maximizes the protections and incentives available to them.

[1] See U.S. ex rel. Cieszynski Lifewatch Servs., Inc., 2016 WL 2771798, at *5 (N.D. Ill. May 13, 2016)

[2] See, e.g., U.S. ex rel. Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1062 (9th Cir. 2011) (concluding that the relator’s “grabbing of tens of thousands of documents” was too overbroad and unreasonable to warrant protection from liability for breach of contract for violating the employer’s confidentiality agreement).

[3] Tides v. The Boeing Co., 644 F.3d 809 (9th Cir. 2011).

[4] Compare Pacheco v. Waldrop, 84 F. Supp. 3d 606, 609 (W.D. Ky. 2015) (holding that complaints made to newspapers did not qualify as protected disclosures for the purpose of protections under the Kentucky Whistleblower Act) with Dep’t of Homeland Sec. v. MacLean, 574 U.S. 383, 398-99 (2015) (holding that the federal employee-whistleblower’s public disclosures made to media were not “specifically prohibited by law” and were therefore entitled to protections under the Whistleblower Protection Act); Chambers v. Dep’t of Interior, 602 F.3d 1370, 1378-79 (Fed. Cir. 2010) (concluding that statements made by a federal government employee to a newspaper about a substantial and specific danger to public health or safety were protected disclosures under the Whistleblower Protection Act).

[5] See FirstEnergy Corp. v. Pircio, — F. Supp. 3d —, 2021 WL 857107, at*4-5 (N.D. Ohio Mar. 8, 2021) (concluding that the defendant-employee who shared documents with his attorney, who then provided documents to the government, was protected by the immunity provision of the DTSA because he provided these documents solely for the purpose of reporting a violation of the law).

Copyright Katz, Marshall & Banks, LLP

Article By Alia Al-Khatib of Katz, Marshall & Banks, LLP

For more articles on whistleblowers, visit the NLR Criminal Law / Business Crimes section.