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Anti-Retaliation Under The SEC And CFTC Whistleblower Programs

Being a whistleblower involves personal sacrifice and professional risk.  Many violations of the law go unreported because people who know about them are afraid of being disciplined, losing their job, being demoted, or being passed over for promotion.  Recognizing the financial, reputational and professional risks associated with whistleblowing, Congress  included in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) strong anti-retaliation provisions to protect whistleblowers who provide information to the SEC or the CFTC about violations of the securities and commodities laws, or violations of any protected activity under the Sarbanes-Oxley Act of 2002 (“SOX”).

The Dodd-Frank Act creates a new private right of action for employees who have suffered retaliation “because of any lawful act done by the whistleblower – ‘(i) in providing information to the Commission in accordance with [the whistleblower incentive section]; (ii) in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information; or (iii) in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002,’” the Securities Exchange Act of 1934, and “‘any other law, rule, or regulation subject to the jurisdiction of the [SEC].’”

Importantly, Congress did not limit the private right of action to employees.  The Dodd-Frank Act extends the cause of action to any individual claiming to have been threatened, harassed or subjected to discrimination because of conduct protected by the Dodd-Frank Act.  A whistleblower may file a retaliation claim in federal court and seek, among other remedies, reinstatement, double back pay (as opposed to just back pay, as under SOX) with interest, litigation costs, expert witness fees and reasonable attorneys’ fees.

The SEC Whistleblower Program rules allow the SEC to prosecute violations of the anti-retaliation provisions of the Dodd-Frank Act through an enforcement action.  This means that employers who retaliate against employees who blow the whistle on fraud or other illegal conduct risk having to defend themselves not only against wrongful termination lawsuits, but also against SEC investigations and enforcement actions that may result in penalties exceeding the recovery obtained by an employee in court.

With respect to whistleblowers who report violations of the commodities laws, the Dodd-Frank Act provides for reinstatement, back pay (as opposed to double back pay), and “special damages,” including attorneys’ fees and costs.  The Dodd-Frank Act does not provide for recovery of punitive damages.

In addition, under the Dodd-Frank Act, the anti-retaliation rights and remedies available to CFTC whistleblowers “may not be waived by any agreement, policy, form, or condition of employment, including by a predispute arbitration agreement,” and that “[n]o predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.”  As a consequence, employers will not be able to compel arbitration of a whistleblower’s claims, nor will they be able to include a release of a whistleblower’s claims in their general releases or settlement agreements with employees.

Although the Dodd-Frank Act does not explicitly ban predispute arbitration agreements or waivers of retaliation claims, the SEC has taken the position that the Securities and Exchange Act of 1934 already prohibits employers from requiring employees to limit their anti-retaliation rights or litigate their retaliation claims in arbitration.

Finally, neither SOX nor the Dodd-Frank Act provide anti-retaliation protection to employees working overseas.  Although non-U.S. employees working for non-U.S. companies can be eligible for rewards under the SEC’s Whistleblower Program if the company is listed on a U.S. stock exchange, such employees do not enjoy the same anti-retaliation protections as U.S.-based employees.  Therefore, even though foreign whistleblowers are eligible to receive a reward under the SEC Whistleblower Program, the Dodd-Frank Act will not protect them against retaliation for reporting a violation of the law.

Freiberger Haber LLP is dedicated to providing experienced, dedicated, and aggressive representation for whistleblowers looking to report violations of the federal securities and commodities laws to the SEC or CFTC.  Freiberger Haber LLP will work closely with you and assist you in assessing your rights under the anti-retaliation provisions of the Dodd-Frank Act.  If you want to blow the whistle or have questions about your rights under the anti-retaliation provisions of the SEC Whistleblower Program or the CFTC Whistleblower Program, contact Freiberger Haber LLP.

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