Blowing the Whistle on the Dodd-Frank Amendments: The Case against the New Amendments to Whistleblower Protection in Section 806 of Sarbanes-Oxley

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INTRODUCTION

A mere six months into his term in office, President Barack Obama proposed a "sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression." (1) The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"), (2) a 2,300-page bill with tremendous reach into the regulation of the financial services industry, was enacted one year after the President's proposal. (3)

The Dodd-Frank Act, in its entirety, offers significant increases in whistleblower protection in comparison to other federal whistleblower statutes. In general, whistleblower protection shields an employee from retaliation when the employee reports that his employer engaged in fraudulent behavior. (4) In addition to creating its own separate cause of action for whistleblowers alleging employer retaliation, (5) the Act amends the oft-maligned (6) section 806 of the Sarbanes-Oxley Act of 2002 (7) ("Sarbanes-Oxley"). Prior to Dodd-Frank's passage, section 806 was the only source of federal whistleblower protection for private-sector employees. (8)

The Dodd-Frank amendments to Sarbanes-Oxley are found in sections 922 and 929A of the Act. These sections extend liability for whistleblower retaliation to a mass of employers previously not covered by Sarbanes-Oxley's section 806. sections 922 and 929A amend section 806 by prohibiting pre-dispute mandatory arbitration agreements, extending 806's statute of limitations and granting whistleblowers the fight to a jury trial in district court.

Because of the difficulties whistleblowers had in obtaining protection and relief under Sarbanes-Oxley, (9) many scholars view Dodd-Frank's amendments as a positive step toward increasing protection for whistleblowers. (10) This Note takes a contrary stance. After analyzing the pillar whistleblower cases arising under section 806, this Note will argue that Dodd-Frank's amendments will not substantially alter the outcome of section 806's cases and may be more detrimental than beneficial to employee whistleblowers. Because this Note only argues against Dodd-Frank's amendments to Sarbanes-Oxley's 806, I will not discuss Dodd-Frank's separate cause of action except when necessary for the purposes of analyzing the amendments to section 806.

In Part I, I will discuss the background leading up to the enactment of Sarbanes-Oxley's whistleblower protection provisions. In Part II, I will discuss the history that led to the amendments to those protections by Dodd-Frank. In Part III, I will analyze the litigation that arose under the whistleblower provisions in Sarbanes-Oxley. Finally, in Part IV, I will argue that Dodd-Frank's amendments to Sarbanes-Oxley will not provide greater whistleblower protection against retaliation in light of the previous decisions in section 806 cases.

I. THE HISTORY AND ACCOUNTING SCANDALS LEADING TO THE FORMATION OF SARBANES-OXLEY'S WHISTLEBLOWER PROVISIONS

Prior to Sarbanes-Oxley's enactment in 2002, a private-sector employee had no federal legal protection from retaliation if he alerted the regulators or his superiors to fraudulent activity occurring in his company. (11) Significant protections were already firmly in place for government employees reporting fraud in order to curb the waste of taxpayers' dollars. (12) However, Congress had yet to find a reason to extend such protection to employees in the private sector. (13) The substantial publicity and apparent pervasiveness of the accounting scandals of the early twenty-first century gave Congress a reason to extend the protection to private sector employees.

Two of the most well-known accounting scandals, Enron and WorldCom, involved instances of whistleblowing. In both situations, employees alerted upper management to the accounting irregularities that they discovered, only to see their concerns fall on deaf ears. (14)

Enron filed for bankruptcy in the Southern District of New York on December 2, 2001. …