Author: TJ

SEC’s Second Whistleblower Award This Week Makes Exception for Tipster

After a nearly three-month dry period for whistleblower bounties, the U.S. Securities and Exchange Commission this week awarded a pair of tipsters who helped the agency bring successful enforcement actions.

On Thursday, two days after awarding nearly $2.5 million to an employee of an unspecified government agency—the first-ever of such an award—the SEC approved a more than $1.7 million bounty for a corporate insider who helped the agency stop a fraud that otherwise would have been difficult to detect.

‘When whistleblowers tip the SEC, it not only can bring wrongdoers to justice but also a relief to investors,” said Jane Norberg, chief of the SEC’s whistleblower office. ”This whistleblower’s valuable information enabled us to stop further investor harm and ultimately return money to victims.”

To approve the latest award, the SEC made an exception that it has used at least once before to reward a tipster who began working with the agency before the 2010 passage of Dodd-Frank, which created the agency’s whistleblower program.

The recipient of Thursday’s award had initially contacted the SEC before Dodd-Frank—a cutoff that has cost other tipsters the chance to receive big bounties. But the corporate insider continued to provide useful information after the law’s passage.

There was one problem: the information submitted after Dodd-Frank was not “in writing,” a requirement in the year between law’s passage and the August 2011 effective date of SEC rules mandating that tips be mailed, faxed or filed through the agency’s website.

Instead, according to the SEC order approving the award, the whistleblower “provided the new post-Dodd-Frank Act information in the format the enforcement staff requested.” The SEC cited that factor in the “unusual circumstances” identified in the agency’s order, which was redacted to conceal the whistleblower’s identity and did not specify the enforcement staff’s requested format. It might be interesting for you to know more about whistleblower’s at

The SEC in January made a similar exception to award more than $5.5 million to another whistleblower. The whistleblower, in that case, had also begun working with the SEC before Dodd-Frank, then continued assisting the agency after the law’s passage. The information that the tipster provided after Dodd Frank was not provided in writing— “an omission which might normally require an award denial,” the SEC said.
In both cases the SEC found the whistleblower qualified for a bounty nonetheless because the information was submitted “in the format that the enforcement staff expressly requested.”

Thursday’s award puts the total SEC whistleblower compensation, since the program started, at $158 million. Forty-six whistleblowers have been paid between 10 and 30 percent of monetary sanctions that exceed $1 million.

In determining the percentage for Thursday’s award recipient, the SEC noted the whistleblower “bears some, albeit limited, culpability” for the fraud. The agency does not identify what percentage any whistleblower receives.
On Tuesday, the SEC approved an award despite the whistleblower’s employment at a government agency that has a law enforcement component.

SEC rules bar government employees from receiving awards if they work at a financial regulator or a law enforcement agency. Because the whistleblower did not work in the law enforcement section of the government agency at issue, the SEC said, “neither of the two exceptions prevents an award here.”

Who Is an Eligible SEC Whistleblower? Chapter 6

Most individuals, regardless of citizenship, may be “eligible” whistleblowers if they voluntarily provide the SEC with original information about a possible violation of the federal securities laws that has occurred, is ongoing, or is about to occur. The information provided must lead to a successful SEC action that results in monetary sanctions exceeding $1 million. One or more people can act as a whistleblower, but companies or organizations cannot qualify as whistleblowers. Furthermore, individuals are not required to be employees of a company to submit information about that company.

Different eligibility rules apply to:

officers, directors, trustees, or partners of an entity, if another person informed them of allegations of misconduct, or if they learned the information about the entity’s processes for identifying, reporting, and addressing possible violations of law;

employees whose principal duties involve compliance or internal-audit responsibilities, or those employed by, or otherwise associated with, a firm retained to perform compliance or internal-audit functions for an entity;

those employed by, or otherwise associated with, a firm retained to conduct an inquiry or investigation into possible violations of law; and

employees of, and other persons associated with, a public accounting firm, if they obtained the information through the performance of an engagement required of an independent public accountant under the federal securities laws, and that information related to a violation by the engagement client or the client’s directors, officers, or other employees.

Any of those individuals may be eligible for a SEC whistleblower award if:

his or her disclosure is necessary to prevent conduct that is likely to cause substantial injury to the financial interest or property of the entity or investors;

the entity is engaging in conduct that will impede an investigation of the misconduct; or

at least 120 days have elapsed since either:

the whistleblower provided the information to the entity’s audit committee, chief legal officer, or chief compliance officer (or their equivalents), or to his or her supervisor; or

the whistleblower received the information if he or she received it under circumstances indicating that the entity’s audit committee, chief legal officer, or chief compliance officer (or their equivalents), or the whistleblower’s supervisor was already aware of the information.

Wells Fargo Whistleblower Prevails in OSHA Investigation of Retaliation Claims

The U.S. Department of Labor (DOL) has ordered Wells Fargo to reinstate and pay approximately $577,500 damages to a former branch manager in Pomona who was terminated for complaining about salespersons creating unauthorized accounts to meet unrealistic sales targets. This is the second Occupational Safety and Health Administration (OSHA) order in 2017 ruling for a Wells Fargo whistleblower. Approximately three months ago, OSHA ordered Wells Fargo to reinstate another whistleblower and pay approximately $5.4M in damages for violating the Sarbanes-Oxley (SOX) whistleblower protection law.

Wells Fargo Whistleblower’s Protected Conduct

OSHA found that Wells Fargo fired the whistleblower in September 2011 because she opposed the bank’s private bankers opening customer accounts and enrolling customers in bank products without their knowledge, consent or appropriate disclosures. These disclosures relate to the unlawful sales practices that resulted in a $185 million fine imposed by the Consumer Financial Protection Bureau (CFPB) and other bank regulators. The CFPB found that Wells Fargo opened approximately 2 million deposit and credit-card accounts without customers’ approval to satisfy sales goals.

Relief Ordered

OSHA has ordered Wells Fargo to reinstate the whistleblower and pay $577,500, which represents lost wages and benefits (also known as back pay, compensatory damages, and attorneys’ fees). In addition, OSHA ordered Wells Fargo to post a notice informing employees of their whistleblower protections under the SOX and Consumer Financial Protection acts. As SOX authorizes uncapped special damages (damages for reputational harm and emotional distress), the whistleblower could potentially recover damages at trial more than the amount that OSHA ordered Wells Fargo to pay. Recently SOX whistleblowers have obtained substantial recoveries at trial, including the following three jury verdicts:

Jury Awards Former Bio-Rad Counsel $11M in Sarbanes-Oxley Whistleblower Case

Jury Awards Six Million Dollars to Whistleblower in Sarbanes-Oxley Case

Sarbanes-Oxley Whistleblower Obtains $2.7M in Front Pay

Reasonable Cause Standard in OSHA Whistleblower Investigations

OSHA enforces more than twenty whistleblower protection laws, investigating reprisal complaints and issuing merit findings where there is reasonable cause to believe that retaliation has occurred. A 2015 OSHA memo clarifies that OSHA employs the following “reasonable cause” standard in investigations of whistleblower retaliation claims:

“The threshold OSHA must meet to find reasonable cause that a complaint has merit requires evidence in support of each element of a violation and consideration of the evidence provided by both sides during the investigation but does not generally require as much evidence as would be required at trial. Thus, after evaluating all the evidence provided by the employer and the complainant, OSHA must believe that a reasonable judge could rule in favor of the complainant.”

“OSHA’s investigation must reach an objective conclusion – after consideration of the relevant law and facts – that a reasonable judge could believe a violation occurred. The evidence does not need to establish conclusively that a violation did occur.”

“OSHA’s responsibility to determine whether there is reasonable cause to believe a violation occurred is greater than the complainant’s initial burden to demonstrate a prima facie allegation that is enough to trigger the investigation.”

“Although OSHA will need to make some credibility determinations to evaluate whether a reasonable judge could find in the complainant’s favor, OSHA does not necessarily need to resolve all possible conflicts in the evidence or make conclusive credibility determinations to find reasonable cause to believe that a violation occurred.”

If OSHA orders reinstatement of a SOX whistleblower, the order is effective immediately and does not stay pending the resolution of any objections or appeal.

OSHA Enforcement of Corporate Whistleblower Protection Laws

There has been some speculation that the Trump Administration might curtail enforcement of whistleblower protection laws. But the recent orders in SOX claims brought by Wells Fargo whistleblowers suggests that DOL leadership is committed to vigorously enforcing whistleblower protections laws. In a press release, Barbara Goto, OSHA regional administrator in San Francisco, stated that “[n]o banking industry employee should fear retaliation for raising concerns about fraud and practices that violate consumer financial protections” and that the DOL “will fully and fairly enforce the whistleblower protection laws under its jurisdiction.” This is welcome news and is consistent with President Trump’s promise to drain the swamp. As Tom Devine, Legal Director of the Government Accountability Project, and I argued in a recent article, Draining the Swamp Requires Robust Whistleblower Protections and Incentives