Congress is poised to expand the definition of “whistleblower,” with respect to violations of securities and commodities law. The “Whistleblower Programs Improvement Act” (WPIA), which enjoys bipartisan support, would extend protection from retaliation to whistleblowers who choose to report wrongdoing internally before or instead of reporting directly to the Securities and Exchange Commission (SEC) or the Commodities Futures Trading Commission (CFTC).
“There’s no reason why those who want to report wrongdoing internally should face potential retaliation from the exact people they are reporting to. Internal disclosures can be the fastest and most effective way for a company to remedy problems, prevent fraud and protect investors. Our bill will ensure that those who do the right thing and report violations will be protected,” Senate Finance Committee Chairman Chuck Grassley (R-Iowa) said in a press statement. His co-sponsors include Sens. Tammy Baldwin (D-Wis.), Joni Ernst (R-Iowa) and Dick Durbin (D-Ill.).
SCOTUS Decision in Digital Realty Trust
The Dodd-Frank Act expressly prohibits retaliation by employers against whistleblowers and creates a private cause of action for those who are discharged or discriminated against by their employers in violation of the statute. Under the statute, a “whistleblower” is defined as “any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the [SEC], in a manner established by rule or regulation, by the [SEC].” A separate provision of the Dodd-Frank Act prohibits retaliation against a whistleblower “because of any lawful act done by the whistleblower . . . in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 . . . , [the Securities Exchange Act of 1934], section 1513 (e) of title 18, and any other law, rule, or regulation subject to the jurisdiction of the Commission.”
The SEC’s implementing rule initially provided protection from retaliation to workers who made protected disclosures regardless of whether they reported the information to the SEC or another source. However, in Digital Realty Trust, Inc. v. Somers, the U.S. Supreme Court held that Dodd-Frank’s anti-retaliation provision does not extend to individuals who have not reported a federal securities violation to the SEC.
The SEC subsequently amended Rule 21F-2 so that it comported with the Court’s holding by establishing a uniform definition of “whistleblower” that would apply to all aspects of Exchange Act Section 21F—i.e., the award program, the heightened confidentiality requirements, and the employment anti-retaliation protections. Accordingly, for purposes of retaliation protection, the rule currently requires an individual to report information about possible securities laws violations to the SEC “in writing.” Individuals who report violations to their employer but fail to report to the SEC are not protected from retaliation.
Whistleblower Programs Improvement Act
The WPIA amends the SEC and CFTC whistleblower protection provisions in the Dodd-Frank Act. Under the amended law, whistleblowers would be protected from retaliation when providing information regarding any conduct that they reasonably believe constitutes a violation of any law, rule, or regulation subject to the jurisdiction of the SEC/CFTC to—
(I) a person with supervisory authority over the whistleblower at the employer of the whistleblower, if that employer is an entity registered with, or required to be registered with, the Commission, a self-regulatory organization, or a State securities commission or office performing like functions; or
(II) another individual working for the employer described in subclause (I) who the whistleblower reasonably believes has the authority to— (aa) investigate, discover, or terminate the misconduct; or (bb) take any other action to address the misconduct.
The WPIA also seeks to speed up the timeframe for awarding whistleblowers awards. While the SEC program has been extremely successful, it has also been plagued with delays. The bill would mandate that the SEC and CFTC issue an initial award determination within one year of the deadline to apply for an award. The agencies would have the ability to extend the deadline for up to an additional year for good cause, including claims deemed complex or those involving more than one whistleblower.
The WPIA would also harmonize the SEC and CFTC statutes to better ensure whistleblowers can pursue remedies under the law. For instance, the CFTC anti-retaliation law would be amended to prohibit the use of non-disclosure agreements to impede whistleblowing and bar the use of pre-dispute arbitration agreements.
This WPIA is similar to the Whistleblower Protection Reform Act of 2019 (H.R. 2515), which the House of Representatives passed this summer. The bipartisan legislation passed by a vote of 410-12. Assuming the Senate passes the WPIA, the two bills must be reconciled before heading to President Donald Trump for signature.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Bob Levy, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.