SEC Safe Harbor Ruling for Whistleblower Puts GCs in Tough Spot
The former head of the SEC's Office of the Whistleblower told Corporate Counsel that while the ruling is "heartwarming," it sends a mixed message to GCs.
April 06, 2018 at 05:29 PM
4 minute read
For the first time the U.S. Securities and Exchange Commission has invoked the 120-day safe harbor rule to award a whistleblower who first reported the complaint to a different federal agency.
The SEC on Thursday said it awarded more than $2.2 million to the whistleblower, who also later gave the same information to SEC investigators. Under the safe harbor rule, if a whistleblower gives the SEC the same information within 120 days of reporting it to another agency, the commission will treat the information as received on the same date as the other agency.
Sean McKessy, who served as the first chief of the SEC Office of the Whistleblower and is now a whistleblower lawyer with Phillips & Cohen, told Corporate Counsel on Friday that the SEC action, while “heartwarming” to him, sends a mixed message to general counsel.
“This ruling would normally encourage internal reporting within a company first,” McKessy said, because the whistleblower would still have 120 days to report to the SEC if he or she wasn't satisfied with the company's response.
But, McKessy noted, the recent U.S. Supreme Court decision in Digital Realty Trust v. Somers held that internal reporting does not protect an employee from employer retaliation. So that ruling works against the employee waiting to tell the SEC, he said.
“The two rulings have painted in-house counsel into a very difficult spot,” McKessy said. “General counsel could use the SEC ruling to encourage employees to report internally first. But how do you do that with a straight face when you know how the Supreme Court ruled?”
McKessy also said the SEC ruling was somewhat unusual because the agency had already begun its investigation based on the other agency's shared information.
“A harder line reading would have been that the safe harbor rule was intended to be invoked before the SEC begins its investigation,” he said. “And some might still suggest that.”
Still, McKessy said the SEC ruling was a good decision and “squares with what the rules were intended to accomplish.”
The SEC explained in a statement that within the rule's time period the whistleblower gave the same information to the SEC and “provided substantial cooperation in the investigation.”
“Whistleblowers, especially nonlawyers, may not always know where to report, or may report to multiple agencies,” said Jane Norberg, chief of the SEC's Office of the Whistleblower, in the statement.
She continued, “This award shows that whistleblowers can still receive an award if they first report to another agency, as long as they also report their information to the SEC within the 120-day safe harbor period and their information otherwise meets the eligibility criteria for an award.”
Edward Ellis, co-chair of the whistleblower practice at Littler Mendelson, defends companies against complaints. He said the ruling was really “neutral” for corporations.
“It's a sensible interpretation of the [safe harbor] law,” Ellis said. “It doesn't matter to the company which agency gets the report first, it is still going to be investigated.”
The SEC withholds the identity of whistleblowers as well as any facts that might help identify the individual. In this instance, the commission did not release the name of the whistleblower, the company involved, or the other agency that first received the complaint.
The whistleblower award amounts to from 10 percent to 30 percent of the funds that the SEC collected from the company. So the company's civil penalty in this case would have been between $22 million and $66 million.
All payments to whistleblowers are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators.
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
NOT FOR REPRINT
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
You Might Like
View AllGC With Deep GM Experience Takes Legal Reins of Power Management Giant
2 minute readUS Reviewer of Foreign Transactions Sees More Political, Policy Influence, Say Observers
'Unlawful Release'?: Judge Grants Preliminary Injunction in NASCAR Antitrust Lawsuit
3 minute readEx-Red Robin CLO Joins Norton Rose Fulbright After Helping Sell Latest Employer for $4.9 Billion
Trending Stories
- 1Recent Decisions Regarding the Telephone Consumer Protection Act
- 2The Tech Built by Law Firms in 2024
- 3Distressed M&A: Mass Torts, Bankruptcy and Furthering the Search for Consensus: Another Purdue Decision
- 4For Safer Traffic Stops, Replace Paper Documents With ‘Contactless’ Tech
- 5As Second Trump Administration Approaches, Businesses Brace for Sweeping Changes to Immigration Policy
Who Got The Work
Michael G. Bongiorno, Andrew Scott Dulberg and Elizabeth E. Driscoll from Wilmer Cutler Pickering Hale and Dorr have stepped in to represent Symbotic Inc., an A.I.-enabled technology platform that focuses on increasing supply chain efficiency, and other defendants in a pending shareholder derivative lawsuit. The case, filed Oct. 2 in Massachusetts District Court by the Brown Law Firm on behalf of Stephen Austen, accuses certain officers and directors of misleading investors in regard to Symbotic's potential for margin growth by failing to disclose that the company was not equipped to timely deploy its systems or manage expenses through project delays. The case, assigned to U.S. District Judge Nathaniel M. Gorton, is 1:24-cv-12522, Austen v. Cohen et al.
Who Got The Work
Edmund Polubinski and Marie Killmond of Davis Polk & Wardwell have entered appearances for data platform software development company MongoDB and other defendants in a pending shareholder derivative lawsuit. The action, filed Oct. 7 in New York Southern District Court by the Brown Law Firm, accuses the company's directors and/or officers of falsely expressing confidence in the company’s restructuring of its sales incentive plan and downplaying the severity of decreases in its upfront commitments. The case is 1:24-cv-07594, Roy v. Ittycheria et al.
Who Got The Work
Amy O. Bruchs and Kurt F. Ellison of Michael Best & Friedrich have entered appearances for Epic Systems Corp. in a pending employment discrimination lawsuit. The suit was filed Sept. 7 in Wisconsin Western District Court by Levine Eisberner LLC and Siri & Glimstad on behalf of a project manager who claims that he was wrongfully terminated after applying for a religious exemption to the defendant's COVID-19 vaccine mandate. The case, assigned to U.S. Magistrate Judge Anita Marie Boor, is 3:24-cv-00630, Secker, Nathan v. Epic Systems Corporation.
Who Got The Work
David X. Sullivan, Thomas J. Finn and Gregory A. Hall from McCarter & English have entered appearances for Sunrun Installation Services in a pending civil rights lawsuit. The complaint was filed Sept. 4 in Connecticut District Court by attorney Robert M. Berke on behalf of former employee George Edward Steins, who was arrested and charged with employing an unregistered home improvement salesperson. The complaint alleges that had Sunrun informed the Connecticut Department of Consumer Protection that the plaintiff's employment had ended in 2017 and that he no longer held Sunrun's home improvement contractor license, he would not have been hit with charges, which were dismissed in May 2024. The case, assigned to U.S. District Judge Jeffrey A. Meyer, is 3:24-cv-01423, Steins v. Sunrun, Inc. et al.
Who Got The Work
Greenberg Traurig shareholder Joshua L. Raskin has entered an appearance for boohoo.com UK Ltd. in a pending patent infringement lawsuit. The suit, filed Sept. 3 in Texas Eastern District Court by Rozier Hardt McDonough on behalf of Alto Dynamics, asserts five patents related to an online shopping platform. The case, assigned to U.S. District Judge Rodney Gilstrap, is 2:24-cv-00719, Alto Dynamics, LLC v. boohoo.com UK Limited.
Featured Firms
Law Offices of Gary Martin Hays & Associates, P.C.
(470) 294-1674
Law Offices of Mark E. Salomone
(857) 444-6468
Smith & Hassler
(713) 739-1250