United States: No Holiday From Whistleblowers: A Scary Future Predicted For The Financial Industry

On July 30, 2016, the United States celebrated its National Whistleblower Appreciation Day, which the US Senate adopted through Senate Resolution 522. This annual designation is designed to help ensure that the federal government "implements the intent of the Founding Fathers, as reflected in the legislation enacted on July 30, 1778," by encouraging each executive agency to inform its employees and the public about the legal rights of US citizens to "blow the whistle" and to acknowledge the contributions of whistleblowers who combat "waste, fraud, [and] abuse" and other legal violations. Congress needed no such reminder when it enacted the Dodd-Frank Act in 2010 amending the Securities Exchange Act of 1934 (the "Exchange Act") by, among other things, adding Section 21F, creating Securities Whistleblower Incentives and Protections.

Now, more than a half a decade on from Dodd- Frank's creation, the question of what its whistleblower incentives mean for the financial industry has begun to be answered in the steadily increasing awards made by the SEC. But to get a clearer picture of how the this industry might be affected in the future, one might turn to awards made under another Act, the Federal False Claims Act ("FCA"), as the FCA appears to portend an increasing amount, significance and severity of whistleblower initiated cases, fines and awards.

Background: A Reminder of the SEC's Whistleblower Program

Whistleblowers Incentivized: As a result of Dodd-Frank adding Section 21F – concerning Whistleblowers – to the Exchange Act, the SEC is now authorized to make financial awards to individuals who voluntarily provide information that leads to enforcement actions where the monetary sanctions exceed $1 million. The awards program allows payment to whistleblowers in amounts from 10 to 30 percent of the sanctions that the SEC collects in a matter.

SEC Office of the Whistleblower: The SEC created the Office of the Whistleblower ("OWB") as a separate office within the Division of Enforcement to administer the Dodd-Frank whistleblower program. The number of whistleblower complaints filed with the office has risen significantly each year, from 334 tips in fiscal year 2011 to 3,923 tips in fiscal year 2015.1 Since the program's inception, the OWB has received over 14,000 tips and, as of August 30, 2016, awarded more than $107 million to 33 whistleblowers. Included in these amounts are payments of $14 million to a whistleblower in October 2013, $30 million in September 2014 and $17 million in June 2016. In August 2016, the OWB awarded another whistleblower $22 million.

Under the program, a whistleblower may be eligible to receive an award when the information provided either caused the opening and successful conclusion of an examination or investigation or when the information significantly contributed to an already open enforcement action. Additionally, there is no requirement that the individual be a current or former employee to be eligible for an award.

Prohibitions on Retaliating Against or Impeding Whistleblowers: In addition to establishing the financial awards program, the Dodd-Frank Act and the implementing regulations include anti-retaliation provisions. These provisions prohibit retaliation against whistleblowers who report potential wrongdoing based on a reasonable belief that a possible securities violation has occurred, is in progress or is about to occur. The provisions generally provide that no employer may discharge, demote, suspend, threaten or harass, directly or indirectly, or in any other manner discriminate against a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower in, among other things, providing information to the SEC.

In July 2014, the SEC brought its first enforcement action against an employer for retaliating against an employee who reported potential securities law violations to the SEC. According to the SEC, an advisory firm's head trader reported to the OWB that the firm engaged in prohibited principal transactions with an affiliate when trading on behalf of clients. The SEC claimed that the advisory firm retaliated against its head trader for making the complaint by, among other things, removing him as head trader, stripping him of supervisory responsibilities, assigning him to investigate the very conduct he reported and changing his job function to a full-time compliance assistant. The firm entered into a settlement with the SEC that resolved these and other allegations. As part of the settlement the firm agreed to pay a penalty of $300,000.

Significantly, the protection afforded by the anti-retaliation provisions extends not only to individuals who report wrongdoing to the SEC, but also to employees who, among other things, report potential securities law violations internally to their employers. The SEC has long taken the position that the anti-retaliation provisions protect individuals who report potential wrongdoing internally, as well as those who report wrongdoing to the SEC. Although district courts have reached differing conclusions on this issue, in Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2nd Cir. 2015), the United States Court of Appeals for the Second Circuit deferred to the SEC's interpretation of the anti-retaliation provisions and held that they apply to an employee who reported internally to his employer an alleged accounting fraud scheme.

The Dodd-Frank amendments and implementing rules also prohibit attempts to impede potential whistleblowers from reporting wrongdoing. Rule 21F-17 states that "[n]o person may take any action to impede an individual from communicating directly with the [SEC] staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement...with respect to such communications." The SEC has taken aggressive enforcement action against companies that it believed impeded potential whistleblowers by requiring employees to enter into agreements with broad confidentiality provisions or waivers of rights to recover monetary awards under whistleblower programs.

In April 2015, the SEC brought an enforcement action against a public company for its use of confidentiality agreements that allegedly impeded whistleblowers. During an internal investigation, the company required witnesses to sign confidentiality statements that contained warnings that they could face disciplinary action if they discussed the matters with outside parties without the prior approval of the company's legal department. Although the SEC did not have any evidence that any company employee was, in fact, prevented from communicating directly with the SEC about potential securities law violations or that the company took any action to enforce the confidentiality requirement or to prevent any such communications, the SEC found that the language undermined the purpose of the Exchange Act, which was enacted to "encourag[e] individuals to report to the Commission." The company agreed to pay a $130,000 penalty to settle the charges and amended its confidentiality statements to clarify that employees are free to report possible violations without the company's approval and without fear of retaliation.

In June 2016, the SEC settled a matter with a financial services company for misusing customer data and, as part of the matter, addressed language in some employee severance agreements, which the SEC characterized as prohibiting the employees from disclosing confidential information or trade secrets of the company to any person or entity except pursuant to formal legal process or after first obtaining written approval from the company. As part of the settlement, the company agreed to amend its severance agreements and provide whistleblowing training.

In August, 2016, the SEC again took enforcement action based on a company's efforts to limit employee whistleblowing. In this matter, the company's severance agreements required departing employees to waive their rights to recover any money from whistleblower claims they filed with the SEC or other federal agencies. Such provisions became more widespread after the Dodd-Frank whistleblower program came into existence as companies sought to dissuade employees from filing complaints with the SEC. The company agreed to pay $265,000 and amend its severance agreements to settle the matter. Just six days later, the SEC announced a similar settlement with a health insurer whose severance agreements limited employees' rights to whistleblower awards. The company, which had already removed the waiver language from its agreements in October 2015, agreed to pay a fine of $340,000.

International Reach:While the history of rewarding whistleblowers for information that leads to successful collections has been ongoing and common within the United States, especially under the FCA, the Dodd-Frank program has significantly expanded this practice beyond US borders. In FY 2015, not only did the OWB receive complaints from all 50 states and the District of Columbia, but it also received complaints from 61 foreign jurisdictions. Since the inception of the program, complaints have been received from a total of 95 different foreign jurisdictions.

A Look in the Crystal Ball

Theodore Roosevelt is credited with the quote "The more you know about the past, the better prepared you are for the future." Accordingly, looking to the experience that the government contracting and health care industries have had with the FCA provides some guidance as to what the financial industry will likely face under the Dodd-Frank whistleblower program.

Most FCA actions are filed under the qui tam provisions that allow individual whistleblowers, known as relators, to file suits on behalf of the government. If the government prevails, the relator receives up to 30 percent of the recovery. The number of qui tam suits filed increased from 365 in 2007 to 638 in 2015. During the same period, the total amount of incentive payments awarded to whistleblowers more than tripled, from $197 million to $597 million. While the financial services industry has also had its share of FCA matters, the vast majority of these cases have been brought in the health care and contracting industries. As expected, the lessons learned from these two industries under the FCA suggest that the more awards granted under the Dodd-Frank whistleblower program, the more whistleblowers will be incentivized to make reports in order to take advantage of the potential for larger awards.

Certainly, the Dodd-Frank awards of $17 million, $22 million and $30 million also reinforce the "winning lottery ticket" optics of the program. Also, while American workers in all industries are now generally aware of the protections and rewards for whistleblowing activity, the geographical expansion of the whistleblower program under Dodd-Frank, as well as the increasing size of the awards, will lead to the creation of an international cottage industry of plaintiffs' law firms that will assist and encourage whistleblowers by marshalling complaints through the OWB process. They will also offer their representation in potential retaliation claims, thus increasing the risks to companies of investigations and enforcement actions. Lastly, as seen by the SEC's recent aggressive enforcement activity related to perceived restrictive actions by companies limiting employees' ability to report to, or participate in, whistleblower programs, we should expect a continued expansion of the circumstances that the SEC deems to impede whistleblowers.


1 Only seven weeks of data was available for whistleblower activity in fiscal year 2011 because the whistleblower rules became effective in mid-August 2011.

Originally published on September 21, 2016

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2016. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Cleary Gottlieb Steen & Hamilton LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Cleary Gottlieb Steen & Hamilton LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions