The document discusses recent developments in whistleblower rewards and retaliation claims, including the impact of SEC whistleblower awards and the implications of gag clauses in settlement agreements. It highlights enforcement actions against retaliation, the coverage of the Sarbanes-Oxley Act and Dodd-Frank Act protections, and relevant case law influencing whistleblower protections. The document emphasizes the legal framework for whistleblowing and anti-retaliation measures, detailing recent Supreme Court rulings and their effects on various industries.

1. Whistleblower Reward and
Retaliation Claims: Current
Developments
Sean McKessy, Securities and Exchange Commission
Steven J. Pearlman, Proskauer Rose LLP
Anthony Rosa, Department of Labor, Occupational Safety & Health
Jason Zuckerman, Zuckerman Law
March 31, 2015

2. RECENT SEC
WHISTLEBLOWER
AWARDS

3. Recent SEC
Whistleblower Awards
• Impact of 9/22/14 $30M award
• Circumstances under which persons with
internal audit or compliance-related functions
may be eligible for an award.
• Impact of awards to a corporate officer and
internal auditor
• See OWB Annual Report at
http://www.sec.gov/about/offices/owb/annual-report-2

4. Gag clauses in
settlement agreements
and confidentiality
agreements

5. Gag Clauses
From OWB Annual Report:
•OWB has been working to identify employee confidentiality,
severance, and other kinds of agreements that may interfere with an
employee’s ability to report potential wrongdoing to the SEC.
•Rule 21F-17(a) under the Exchange Act provides that “[n]o person
may take any action to impede an individual from communicating
directly with the Commission staff about a possible securities law
violation, including enforcing, or threatening to enforce, a confidentiality
agreement…with respect to such communications.”
•The Office is actively working with Enforcement staff to identify and
investigate practices in the use of confidentiality and other kinds of
agreements that may violate this Commission rule.

6. • OSHA must approve all settlement agreements
• OSHA must approve privateprivate (third-party) settlement
agreements even if OSHA is not a party
• OSHA will not approve a provision that implies OSHA or
DOL is party to a “confidentiality” agreement
• OSHA will not approve a “gag” order stopping the
employee from talking to the Government
• OSHA may approve a “waiver of future employment” under
certain conditions

7. SEC ENFORCEMENT ACTION FOR
WHISTLEBLOWER RETALIATION

8. SEC Enforcement Action for
Whistleblower Retaliation
• Section 21F(h)(1) of the Exchange Act prohibits employers from
retaliating against individuals in the terms and conditions of their
employment when they engage in whistleblowing activities. Rule
21F-2(b)(2) under the Exchange Act provides that Section 21F(h)(1)
is enforceable in an action or proceeding brought by the
Commission.
• In June 2014, the SEC brought its first anti-retaliation case, charging
hedge fund advisory firm Paradigm Capital Management, Inc. with
retaliating against the head trader for his disclosures to the SEC
about prohibited principal transactions. Paradigm and the firm’s
owner, Candace King Weir, agreed to pay $2.2 million to settle the
Commission’s charges, including for the firm’s violation of Section
21F(h)(1).

9. Practical implications
of the recent U.S.
Supreme Court's
Lawson v. FMR LLC
decision

10. SOX 806 – Who is Covered?
• Company that registers a class of securities
under Section 12 of the 1934 Securities and
Exchange Act
• Company that is required to file reports with the
Securities Exchange Commission under Section
15(d) of the 1934 Act
• A subsidiary or affiliate whose financial
information is included in the consolidated
financial statement of one of these

11. SOX 806 – Who is Covered?
• A nationally recognized statistical rating
organization
• Any “officer, employee, contractor,
subcontractor or agent of such company
or nationally recognized statistical rating
organization”

12. “Officer, Employee, Contractor,
Subcontractor or Agent”
• Lawson v. FMR, No. 12-3 (Mar. 4, 2014)
– SOX protects employees of a public company's
private contractors and subcontractors
– Essentially same decision as ARB decision Spinner v.
David Landau & Assocs. LLC, No. 10-111 (ARB May
31, 2012), but did not defer to ARB
– Majority declined to adopt (but did not rule out)
limiting principles
– Gibney v. Evolution Mktg. Research, LLC, No. 14-
1913, 2014 WL 2611213 (E.D. Pa. June 11, 2014)

13. Impact of Lawson
• What is the statute’s reach?
– Employees of 5,000 public companies
– Employees of 6 million private companies
– Untold millions of employees of public
company employees and officers
• Impact on mutual fund industry and law
and accounting firms, private businesses
generally

14. Sarbanes-Oxley and
Dodd-Frank Protected
Conduct

15. Sarbanes-Oxley Protected Conduct
• Sylvester v. Parexel Int’l, LLC, ARB 07-
123, 2011 WL 2165854 (May 25, 2011)
– Protected conduct not limited to disclosures of
shareholder fraud and C need not prove each
element of fraud (scienter, materiality, etc.)
– Disclosure about a potential violation protected
– Abandons prior ARB’s Platone decision requiring that
disclosure “definitively and specifically relate” to a
violation of one of the categories of fraud or SEC rule
violations

16. Sarbanes-Oxley Protected Conduct
• Will federal courts adopt Sylvester?
– Nielsen v. AECOM Tech. Corp., No. 13-235-cv
(2d Cir. Aug. 8, 2014)
– Weist v. Lynch, 710 F.3d 121 (3rd Cir. 2013)
– Lockheed Martin Corp. v. Administrative
Review Bd., 717 F.3d 1121 (10th Cir. 2013)
– But see Riddle v. First Tennessee Bank, Nat.
Ass’n., 497 Fed. App’x. 588 (6th Cir. 2012).

17. Dodd-Frank Act Protected Conduct
• Protected activity if:
– Provided information to the SEC ;
– Provided assistance in any SEC;
– Made required or protected disclosures under
the Sarbanes-Oxley Act of 2002 . . .

18. Dodd-Frank Act Protected Conduct
• Does it protect internal disclosures?
– No -- Asadi v. G.E. General (USA), L.L.C.,
720 F.3d 620 (5th Cir. 2013)
– Yes – a number of district court have adopted
a contrary position, including two opinions
post-Asadi
– Yes – SEC amicus briefs

19. SOX Causation Standard
and Same-Decision
Affirmative Defense

20. • Feldman v. Law Enforcement Associates Corp.,
779 F. Supp. 2d 472 (E.D.N.C. March 10, 2011)
• Speegle v. Stone & Webster Construction, ARB
13-074, 2005-ERA-006 (ARB Apr. 25, 2014)
• Powers v. Union Pacific RR Co., ARB No. 13-
034, ALJ No. 2010-FRS-030 (March 20, 2015)

21. SOX “Special Damages”
and Recent Jury Verdicts

22. SOX Special Damages
• $6M verdict in Zulfer v. Playboy
Enterprises, Inc. No. 2:12-cv-08263 (C.D.
Cal. Mar. 5, 2014)
• “Special damages” include emotional
distress damages. Jones v. Southpeak
Interactive Corp, — F.3d —-, 2015 WL
309626 (4th Cir. Jan. 26, 2015)

23. SOX Adverse Actions
• Merely “outing” a whistleblower is an
adverse action. Halliburton, Inc. v. Admin.
Review Bd., 771 F.3d 254, 259 (5th Cir.
2014)