SEC Whistleblowers

Malecki Law’s New York Whistleblower lawyers represent a number of anonymous whistleblowers, including Dodd-Frank whistleblowers, in active and closed investigations. These tips involve millions of dollars in bounties, for tipping off the SEC with original information leading to and assisting large SEC investigations. Malecki Law often sits down at the table with the SEC, the DOJ and the US Attorney’s office on whistleblower matters. Experience matters.

Malecki Law’s New York Whistleblower lawyers know that it often takes the courage of whistleblowers to call out covertly illegal business practices. In July 2010, the United States government passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. This reform aims for increased public watch and censure of misconduct in state and national economic affairs. Dodd-Frank takes precise strides to protect the whistleblowers within the finance industry, as well as compensate anyone who believes that they know of wrongdoing, regardless of whether they worked for or with the company or not. Our whistleblower attorneys in New York can guide you in filing a tip. Even rumors, if they can be substantiated, could generate a whistleblowing award, up to 30% of a total recovery greater than $1,000,000.

Dodd-Frank further punishes employers who mistreat, threaten, or otherwise persecute whistleblowers offering information towards any regulatory action. Whistleblowers can remain anonymous and if they are retaliated against, our Whistleblower Law Firm in New York routinely files a separate tip or action, even in the same matter, if retaliation occurs.

Malecki Law’s Whistleblower Attorneys in New York City are ready for completely confidential in-person or virtual consultations. The SEC has awarded over $1 billion in whistleblower awards since the time it started issuing whistleblower awards back in 2012. As the public awareness of whistleblower rewards and awards spread, more substantial tips and claims have been reported. The Office of the Whistleblower (OWB) has also continued its efforts to make whistleblowers feel safe and the anti-retaliatory protection encourages individuals to come forward.

Malecki Law helps prepare statements and ensure that whistleblowers are ably represented when addressing the regulators at hand. One of the most important features of Dodd-Frank is the award system for whistleblowers who provide original information and the anti-retaliatory provision. They need skilled representation otherwise they might risk waiving away their rights to claim the award.

Our Whistleblower Law Firm in Downtown Manhattan have a substantial background advocating for clients in whistleblower filings and litigation, including retaliation claims. We represent people throughout the country and the world in these claims. Before the collapse of the housing market, in the wake of the Sarbanes-Oxley Act, and prior to and after the Dodd-Frank Act, Ms. Malecki, our lead whistleblower lawyer in New York, represented multiple whistleblowers, including some of the first, Arturo Cifuentes and Eric Kolchinsky amongst others. At that time, whistleblowers had less anonymity. Today, our clients enjoy the anonymity of the Dodd Frank Act.

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Whistleblowers may come forward with information to report against an employer or third party for moral reasons or for the money, i.e., a bounty for filing a “tip” with the SEC (which can be anonymous) – so long as the employee did not engage in the misconduct being reported. There are protections under federal law in place in case they suffer adverse employment action as a result of their reporting. Depending on which statute the employee chooses to sue under or qualifies for, their rights, remedies and potential costs vary. Below are two of the legal protections presently available to whistleblowers in the securities industry.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in 2010 under the Obama administration, was created in order to effectively acknowledge the 2008 recession and subsequently ensure regulation of the financial service industry. This type of sweeping adjustments to financial regulatory agencies was the first of its kind post the Great Depression. Amalgamating regulatory agencies, assessing wide-ranging risks to financial markets, guaranteeing investor protection, and increasing the standard within our capital markets are just a few of the passed proposals within this bill. The whistleblower provision of this bill is critical to catch illicit behavior early. The Dodd-Frank Act facilities this process and subsequently protects employees that come forward with fraud.

Whistleblowers are protected by Dodd-Frank from adverse employment action for providing information to the Commission that is covered by Dodd-Frank or by SOX. SOX (See 15 U.S.C. § 78u-6(h)(1)(A) refers to the Sarbanes Oxley Act which safeguards and defends individuals from corporate disclosures and other deceitful practices in the financial sector). Employees may bring their actions directly to Federal District Court. Id. at (h)(1)(B)(i). Such an action may be brought within 6 years of the violation or three years after the discovery of “facts material to the right of action are known or reasonably should have been known by the employee.” Id. at (h)(1)(B)(iii).

An employee who suffers adverse employment action may be entitled to reinstatement, double back pay with interest, and their costs, expert fees, and reasonable attorneys’ fees. Id. at (h)(1)(C). No provision is made for the employer’s attorneys’ fees in case an action is dismissed. These Dodd-Frank provisions do not supersede any other rights held by the employee pursuant to Federal or State law, or by collective bargaining agreement. Id. at (h)(3).

The Sarbanes Oxley Act (SOX) is a federal law enacted in 2002 as a response to various accounting misconduct. The legislation provides extensive guidelines for how public corporations ought to follow legal protocol. Section 806 of SOX, 18 U.S.C. 1515A provides whistleblower protection to employees who report up or out regarding accounting violations. § 1514A speaks to any lawsuits that can be pursued to protect against retaliation in cases of such fraud. That section is limited to companies with publicly registered securities or who are required to file pursuant to Section 15(d) of the Securities Exchange Act of 1934 or are “nationally recognized statistical rating organizations.” See § 1514A(a). These companies cannot cause adverse employment action upon an employee who acts lawfully to provide information about which the employee “reasonably believes” constitutes a violation of sections 1341, 1343, 1344, or 1348 (18 USCS § 1341, 1343, 1344, or 1348), the SEC rules or regulations or any provision of federal law relating to fraud against shareholders. See § 1514A(a)(1).

An employee who believes they have suffered adverse employment action in violation of SOX’s whistleblower protection must first file with the Secretary of Labor within 180 days after the adverse employment action. See§ 1514A(b)(1)(A), (2)(D). The Secretary of Labor has 180 days to issue a decision. Id. See at § 1514A(b)(1)(B). If no decision is forthcoming within that time, the employee may file the complaint in Federal District Court. Id.

Various whistleblowers as such have been represented and protected to the extent legally possible through the depth of experience at Malecki Law. Our law firm has been able to obtain millions of dollars for our clients through the original Sarbanes Oxley statute and the current Dodd-Frank Act. Malecki Law continues to represent, serve, and protect clients willing to encourage transparency in public corporations and the financial sector.

Under SOX, the employee may recover “make whole” relief, including compensatory damages, reinstatement, back pay with interest and compensation for costs, expert fees, and reasonable attorneys’ fees. Id. at (c). No provision is made for the employer’s attorneys’ fees in case an action is dismissed. Importantly, SOX’s whistleblower protections do not supersede any other statutory rights or collective bargaining agreement held by the employee. Id. at § 1514A(d).

If you have something to report, Malecki Law stands ready, willing, and able to successfully help you through the process.

Florida Statutes, Chapter 448, Sections 102 and 103 cover the statutory protections afforded to whistleblowers in the Sunshine State and the remedies if such protections are violated, respectively. Employers are prohibited from taking “retaliatory personnel action”¹ against an employee who has (1) “disclosed, or threatened to disclose, to any appropriate governmental agency, under oath, in writing” information about the violative conduct of their employer, (2) “provided information to, or testified before, any appropriate government agency,” etc. about the violative conduct of their employer, or (3) “objected to, or refused to participate in” any violative conduct.

Subsection (1) is particularly noteworthy since it requires that the disclosure to be made under oath and in writing, as opposed to a phone call or email to a regulator. Moreover, subsection (1) also provides a safeguard for employers, not found in subsections (2) or (3), in that subsection (1)

does not apply unless the employee has, in writing, brought the activity, policy, or practice to the attention of a supervisor or the employer and has afforded the employer a reasonable opportunity to correct the activity, policy, or practice.

An action for violation of Section 102 must be brought “within 2 years after discovering that the alleged retaliatory personnel action was taken, or within 4 years after the personnel action was taken, whichever is earlier.” (emphasis added)

Section 103 provides the following remedies available to the aggrieved employee:

1. An injunction restraining continued violation of this act.
2. Reinstatement of the employee to the same position held before the retaliatory personnel action, or to an equivalent position.
3. Reinstatement of full fringe benefits and seniority rights.
4. Compensation for lost wages, benefits, and other remuneration.
5. Any other compensatory damages allowable at law.

California has its own whistleblower protection statute, Section 1102.5 of the California Labor Code. Section 1102.5 was updated as of January of this year (2014), to increase the protections afforded to whistleblowers.

Section 1102.5 already prevented employers from retaliating against employees who blew the whistle on reasonably-believed violations of federal and/or state law or rules/regulations set forth by governmental agencies. However, as amended, Section 1102.5 now provides these protections to whistleblowers who report reasonably-believed misconduct internally “to a person with authority over the employee, or to another employee who has authority to investigate, discover, or correct the violation or noncompliance.” Employers or individuals acting on their behalf are also prohibited from anticipatory retaliation against an employee the employer believes “may disclose information.”

Furthermore, such whistleblowers are now protected from retaliation by their employer, “or any person acting on the behalf of the employer.” Interestingly, Subsection (d) protects whistleblowers from retaliation by their present employer for blowing the whistle “in any former employment.”

Penalties for violating Section 1102.5 can be steep for employers. In addition to civil damages that may be sought by the employee, “an employer that is a corporation or limited liability company is liable for a civil penalty not exceeding ten thousand dollars ($10,000) for each violation.” Furthermore, “an employer or any other person or entity” who violates Section 1102.5, may be guilty of a misdemeanor, which could mean spending up to a year in county jail or fines of up to $1,000.

The Texas Whistleblower Act (“TCA”) is limited in scope and effect. See Tx. Govt. Code § 554.001 et seq. As it is written, it prohibits a “state of local government” from taking any “adverse employment action against a public employee who in good faith reports a violation of law by the employing government entity or another public employee to an appropriate law enforcement authority.” Id. at § 554.002(a). An appropriate law enforcement authority has been ruled by the Texas Supreme Court not to include one’s supervisor. See Univ. of Tex. Southwestern Med. Ctr. at Dallas v. Gentilello, 398 S.W.3d 680, 684 (TX 2013) (“supervisor's purely internal authority was not law enforcement but law compliance … The bare power to urge compliance or purge noncompliance does not transform [supervisor] into an ‘appropriate law enforcement authority’ as defined in the Act”); see also, Tex. A&M University v. Moreno, 399 S.W.3d 128 (TX 2013) (holding that report to school president is insufficient, because the president is only able to enforce internal compliance).

A whistleblower’s “report” must be made to a “state or local governmental entity or to the federal government” which the employee believes in good faith is empowered to regulate, investigate or enforce such conduct. Id. at § 554.002(b). “Good faith” has been defined by the Texas Supreme Court as meaning “that (1) the employee believed that the conduct reported was a violation of law and (2) the employee's belief was reasonable in light of the employee's training and experience.” Tex. DOT v. Needham, 82 S.W.3d 314, 320 (TX 2002) (citing Wichita County v. Hart, 917 S.W.2d 779, 784 (TX 1996)). This is standard requires objective reasonability. See Gentilello, 398 S.W.3d at 683.

Whistleblowers are entitled to seek injunctive relief, actual damages, court costs and attorneys’ fees, though the statute explicitly limits pecuniary and non-pecuniary damages from $50,000-250,000, depending on the size of entity that is sued. Id. at § 554.003. The personal liability of the employing supervisor is limited to a civil penalty of $15,000, which is paid into the state treasury, if it is required at all. Id. at § 554.008.

Under the TCA, there is a very tight statute of limitations of 90 days, excluding time for grievance or appeals through the employing governmental entity, which are mandatory if they exist. Id. at §§ 554.005, 554.006. There is a rebuttable presumption that the adverse employment action was taken against the employee as a result of the employee’s report of violation of law if such action occurs 90 days or less after the whistleblower reports regarding the violation of law. Id. at § 554.004. If the adverse employment action occurs on the 91^st day, it is the employee’s burden to prove that the adverse action was a result of the report. Id.

The Illinois Whistleblower Reward and Protection Act (“WRPA”), contained within the Illinois False Claims Act, 740 Illinois Compiled Statutes (“ILCS”) § 175/1 et seq., enacted in 1991, is similar to that of New York’s, in that it is modeled off of the Federal False Claims Act statute and provides for a reward to the whistleblower from the proceeds recovered for the fraudulent conduct. The Illinois False Claims Act requires that violations require penalties for each violation of $5,000-10,000, plus three times the damages sustained by the State as a result of the fraudulent conduct. Id. at 740 ILCS § 175/3(a)(2). The State may also recover reasonable attorneys’ fees and court costs. Id. at § 175/4(a).

A private person, acting as a whistleblower, may initiate a claim pursuant to the Illinois False Claims Act, and must file the complaint in camera, and serve it only upon the State Attorney General, which must perform a diligent investigation and determine whether to pursue the action or allow the private person to conduct the litigation. Id. at § 175/4. The whistleblower could receive a reward of 15 to 25% of proceeds recovered from the party who violated the law (the percentage could rise to 30% if the whistleblower filed the case independently, together with court costs and attorneys’ fees). Id. at § 175/4(d). The whistleblower may also recover reasonable expenses and attorneys’ fees. Id.

The WRPA provides protection from retaliation, outlining specific penalties for employers who cause adverse employment action against a whistleblower who has reported a violation of law. Id. at § 175/4(g). The employee has three years from the adverse employment action to bring such a claim for retaliation, id. at § 175/4(g)(3), and may seek reinstatement, as well as recover two times the employee’s back pay, interest on the back pay, litigation costs and attorneys’ fees, id. at § 175/4(g)(2).

The Illinois False Claims Act has been applied to cases involving securities violations. In a 2005 decision, the Illinois Supreme Court held that while a private person does not have standing to sue on behalf of the State for common law causes of action, the lower court erred in dismissing the qui tam portion of the complaint and remanded to the lower court for further proceedings. Scachitti v. UBS Fin. Servs., 215 Ill. 2d 484, 516 (Ill. 2005). Scachitti involved a “taxpayer derivative lawsuit” by a private individual on behalf of the State of Illinois for Paine Webber’s (which became UBS) alleged overcharging in connection with advance refunding bond transactions in 1992. Id. at 489.

Section 740 of New York’s Labor Law afford employees protections against retaliatory acts by their employer. Specifically, Section 740 penalizes an employer or an agent of an employer for taking adverse action to discharge, penalize, threaten, or in any other way discriminate against an employee who reports a reasonable belief that a violation of law has occurred, who provides information to a public body investigating the alleged violation, or who refuses to participate in the alleged violation.

Employees reporting believed violations must make a good faith effort to notify their employer about the activity in question and afford the employer a reasonable opportunity to correct the activity unless the employee reasonably believes there is an imminent and serious danger to the public or another person or that if reporting would lead to the destruction of evidence.

Relief afforded to employees whom have been retaliated against includes injunctive relief, reinstatement of the employee’s position and benefits, compensation for lost wages, and/or payment of attorney’s fees.