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SEC Whistleblower Protection & Unfair Employment Agreements

The Dodd-Frank Act & The Anti-Retaliation Provision

The Dodd-Frank Act, which established the U.S. Securities and Exchange Commission's new whistleblower office, contains an anti-retaliation provision to protect against the risk that a whistleblower's employment will be terminated if he or she reports internally or if it becomes discovered that he or she reported to the SEC.

For any type of retaliation for:(1) reporting to the Commission, (2) assisting the Commission in any investigation, or (3) proceeding based on the information reported or making disclosures that are required or protected under any law, rule, or regulation subject to the jurisdiction of the Commission (including the Sarbanes-Oxley Act of 2002 ), the SEC whistleblower provisions of Dodd-Frank protect whistleblowers from retaliation (including being discharged) in two ways. See Section 21F(h)(1) of the Exchange Act (15 U.S.C. 78u-6(h)(1))

SEC Whistleblower Protection Laws & Compensation

First, a whistleblower who has been retaliated against may bring his or her own private action in federal district court. See Section 21F(h)(1) of the Exchange Act (15 U.S.C. 78u-6(h)(1)(B)(1)) The Statute of Limitations is 3 years from the date of the retaliatory action.  An employer that is found liable will be ordered to reinstate the employee to the position previously held, or to a similar position.  Additionally, the employer may be required to compensate the employee for two times the back pay. The employee also may be entitled to compensation for expenses incurred during the litigation process, such as witness' and attorneys' fees and other costs

SEC Can Enforce & Protect Whistleblowers

Second, the SEC can bring its own enforcement action against a company for retaliatory action against a whistleblower.  Rule 240.21F-2(b)(2)

Read further here about immunity and protection when blowing the whistle to the SEC.

Unfair Employment Agreements for Whistleblowers

It appears, however, that companies are attempting to thwart these protections by using unfair employment agreements to silence whistleblowers.  These agreements contain language that bars employees from seeking a whistleblower award or requires them to disclose SEC investigations internally. Some agreements also force employees to cooperate with the Company in the event of a SEC investigation.  In addition, Companies are including language in severance, confidentiality and other employment agreements that threatens employees with termination if they communicate directly with the SEC.

Some companies have drafted policies compelling their staff to report fraud internally. Others require employees to attest annually that they never witnessed any fraud, a certification that could be used to discredit employees who later blew the whistle.Companies have asked departing employees to sign a document certifying that they have told the Company about any confidential information the employee has given to outside parties.Although it is unclear whether any such language is enforceable, there is no doubt it will deter potential whistleblowers and keep them silent.

To date, the SEC has not brought its own enforcement action against a company for retaliatory action against a whistleblower under Rule 240.21F-2(b)(2)  As a result, whistleblowers with resources who believe they've been retaliated against often pursue private litigation privately.  Recently, James Nordgaard, the head trader for Paradigm Capital Management Inc., claimed in a lawsuit that his employer, Paradigm Capital, "embarked on a campaign of retaliation" against him after he reported "trading violations" and a "deliberate disregard for compliance rules" to the SEC.  Mr. Nordgaard claims he was removed from the trading desk, isolated in a "room with little ventilation" and later "demoted." The case was moved to an arbitration panel.

Contact Us To Learn More

If you have discovered evidence of government fraud, contact an experienced False Claims Act attorney before blowing the whistle. You may be entitled to a substantial reward and the legal protections afforded to whistleblowers under state and federal laws. The attorneys of Berger & Montague are nationally recognized experts in Whistleblower/Qui Tam actions with over a decade of experience pursuing these complex fraud cases. For more information or to schedule your confidential consultation, use the form on this page or call us at 1-800-424-6690.

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For further reading:
Federal and State Whistleblower Laws Relating to the SEC Whistleblower Programs
Immunity and Protection for Whistleblowers
SEC Prepare for Whistleblower Payouts and Monetary Awards under Dodd Frank Act
The Federal and State False Claims Act & Whistleblower Laws

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