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SEC Takes First-of-its-Kind Enforcement Action in Whistleblower Case

The Securities and Exchange Commission (SEC) recently brought a first-of-its-kind enforcement action in a whistleblower retaliation case, highlighting the SEC’s interests in strengthening whistleblower protections.  The SEC charged casino-gaming company International Game Technology (IGT) with retaliating against an employee who reported to supervisors and the SEC that the company’s financial statements were potentially distorted.  IGT agreed to pay a $500,000 penalty and to stop committing further violations of securities laws.  Notably, this is the first time the SEC pursued action against a company solely for retaliating against a whistleblower.

The employee began working for IGT in 2008, and each year received good performance reviews and raises.  In 2014, the employee told senior management and the SEC that IGT might be misstating its publicly-reported financial statements; because IGT used a particular cost accounting model, it could be misleading its shareholders.  From his concerns, IGT investigated, but found no misstatements as the whistleblower claimed.  At the same time, however, IGT removed the employee from significant work assignments. And after it completed its investigation, IGT terminated him.  The SEC found that IGT’s conduct – removing the employee’s work and terminating his employment – violated the whistleblower protection provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).  The SEC did not determine whether IGT actually misstated its publicly-reported financial statements.

Congress passed Dodd-Frank to make significant changes to the U.S. financial regulatory environment following the 2008 recession.  Specifically, Dodd-Frank prohibits companies from retaliating against employees who make disclosures that “are required or protected” by the Sarbanes-Oxley Act of 2002 (SOX), federal securities laws, and SEC rules or regulations.  SOX protects employees from retaliation for reporting any conduct that the employee reasonably believes constitutes corporate and securities fraud, a violation of an SEC rule or regulation, or any provision of federal law relating to fraud against shareholders.  This includes violations of laws regulating consumer finance, corporate and accounting fraud, and commodity and currency exchanges.  By raising concerns regarding misstatements in IGT’s publicly-reported financial statements, the whistleblower raised concerns protected by SOX.

These Dodd-Frank and SOX whistleblower provisions protect employees of publicly-traded companies as well as privately-owned contractors who perform services for publicly-traded companies.  Dodd-Frank also extends protections to employees of certain privately-owned investment companies.  There are, however, significant differences in the remedies and procedures associated with each statute.  For example, whistleblowers claiming protection under SOX must first file with the Department of Labor’s Occupational Safety and Health Administration (OSHA) within 180 days of the employer’s retaliatory conduct before filing suit, whereas claims under Dodd-Frank can go directly to court and must be filed within six years.

The SEC’s enforcement action against IGT highlighted an important element of these laws: the whistleblower retaliation provisions of Dodd-Frank and SOX protect an employee from retaliation if he or she reasonably believes that the concerns he or she reported constitute violations of federal securities laws.  The whistleblower is protected from retaliation even if his or her concerns turn out to be incorrect.  Recent federal court decisions recognize and reinforce this distinction, upholding the reasonable belief standard.

This is the first retaliation-only enforcement action brought by the SEC, and only the second whistleblower retaliation case since the Dodd-Frank Act authorized the agency to bring such charges.  The SEC brought its first whistleblower retaliation enforcement action case in 2014 against Paradigm Capital Management, Inc., and its majority owner, Candace King Weir, in which they agreed to pay the SEC $2 million for violating securities laws and for retaliating against a whistleblower.

What if I believe my employer is committing corporate or securities fraud?

You may have whistleblower claims under Dodd-Frank or SOX if you:

  • Are employed by a publicly-traded company, a private contractor that provides services to a publicly-traded company, or a privately-owned investment company;
  • Had concerns about corporate fraud or securities fraud;
  • Reported those concerns internally, externally, or to the SEC; and
  • Suffered adverse actions at work because you raised those concerns.

 

 

 

 

 

The SEC also has a whistleblower bounty program.  If you report to the SEC information about corporate or securities fraud, and the SEC sanctions the company for an amount greater than $1 million, then you may be entitled to receive between 10% and 30% of the SEC’s total recovery.

The whistleblower lawyers at Correia & Puth, PLLC, are committed to ensuring that employees are protected when they raise concerns about corporate fraud and violations of federal securities laws.  Correia & Puth vigorously advocates on behalf of workplace whistleblowers.  If you are aware of corporate fraud or violations of federal securities law, or if you fear or have experienced workplace retaliation because of raising your concerns, please contact us right away.

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