Any time new compliance legislation surfaces, inside counsel should evaluate whether existing e-discovery technology and processes are adequate. This analysis is particularly important when evaluating your company’s response to the Dodd-Frank Act, which adds significant financial incentives for whistleblowers to go straight to the Securities and Exchange Commission (SEC) with complaints without first going through internal channels.
Enacted July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act is the most comprehensive U.S. financial reform since the 1930s. In May 2011, the whistleblower provisions were approved and went into effect in August. Often referred to as the “whistleblower bounty program,” the provisions were designed to incentivize an individual with knowledge of potential securities violations to come forward for the opportunity to receive a windfall payment of 10 percent to 30 percent of the SEC’s recovery.
When the CEO fired him, he sought protection under the anti-retaliation provisions of Dodd-Frank. The court ruled that anti-retaliation requires that an employee’s disclosures be made to the SEC unless they fall into any of the four categories of disclosures that do not require reporting to the SEC as a predicate to filing suit. Following the court’s ruling against the plaintiff on the defendant’s motion to dismiss, the plaintiff was granted leave to amend the complaint. The amended complaint also failed to survive the defendant’s renewed motion to dismiss.
One interpretation of the court’s response is that going straight to the SEC may be an employee’s safest choice to ensure full anti-retaliation protection, as the incentive for monetary award may outweigh loyalty to the company.
Companies should examine their entire compliance and internal processes in anticipation of an individual going forward to the SEC and should inform employees about all internal options in order to make them feel secure in first reporting any violations internally. It is not enough to have policies outlined, organizations must be prepared and keep employees as informed as possible.
Organizations also must be prepared for the SEC to file a separate action or proceeding to enforce the anti-retaliation provisions. The rules define a whistleblower for purposes of the anti-retaliation provisions as a person who reports a “possible” violation.