On Tuesday, the United States Supreme Court held that the whistleblower protections that apply to employees of publicly traded companies under Section 1514A of the Sarbanes-Oxley Act, also extend to employees of private contractors and subcontractors that serve those public companies.
At an SEC enforcement conference held last Thursday, October 18, 2012, several SEC speakers remarked that the agency had received an average of eight whistleblower tips per day, for a total of nearly 3000 tips from 45 countries, in the first year of operation of the SEC’s Dodd-Frank whistleblower rules. The SEC’s revised whistleblower rules, which took effect in August 2011, permit each whistleblower to receive a bounty of 10-30% of all monetary sanctions collected by the SEC on cases associated with the whistleblower’s tip. To be eligible for a bounty, a whistleblower must voluntarily provide the SEC with original information that leads to a successful SEC enforcement action in which the SEC obtains monetary sanctions greater than $1 million. This announcement follows the first award (and first denial of an award) of bounty payments to SEC whistleblowers in August 2012.
On May 3, the Ninth Circuit ruled in Tides v. Boeing Co., No. 10-35238, that the whistleblower provisions of the Sarbanes-Oxley Act (“SOX”) do not protect employees who disclose information to the media. Although SOX bars public companies from retaliating against employees who report conduct that they reasonably believe constitutes certain types of fraud or securities violations to Congress, federal regulatory or law enforcement agencies, or a person with supervisory authority over the employee, the Ninth Circuit held that this protection does not extend to employee disclosures to the media. Federal appeals courts have previously ruled on press disclosures under other whistleblower statutes, but the Ninth Circuit’s ruling is the first to analyze such disclosures under SOX.
The Dodd-Frank Wall Street Reform and Consumer Protection Act just signed into law by President Obama, H.R. 4173, 111th Cong. (2010) (“Dodd-Frank”), creates new statutory rights and incentives for whistleblowers and also expands already existing rights, such as under the Sarbanes-Oxley Act (“SOX”). Now more than ever, clear policies and procedures backed by strong audit, compliance and investigatory functions are critical to managing the anticipated increase of regulatory enforcement and private party whistleblower litigation that this expansive legislation likely will create.
As a recent decision by the U.S. Court of Appeals for the Fourth Circuit makes clear, the fact that an employer prevailed against an employee’s Sarbanes-Oxley claim in an administrative proceeding cannot be used to bar a new trial of the claim in federal court. The U.S. District Court for the District of Maryland dismissed a former employee’s SOX lawsuit on the ground that it was precluded by an administrative law judge’s granting of the employer’s motion for summary decision. The Court of Appeals, in a ruling of first impression, held that the lower court erred and vacated its dismissal in Stone v. Instrumentation Lab Co., 4th Cir., No. 08-1970, 12/31/09.