Academic journal article Fordham Journal of Corporate & Financial Law

A Novel Approach to Defining "Whistleblower" in Dodd-Frank

Academic journal article Fordham Journal of Corporate & Financial Law

A Novel Approach to Defining "Whistleblower" in Dodd-Frank

Article excerpt

INTRODUCTION

In recent decades, corporate whistleblowers have become one of the many tools in a financial regulator's arsenal in the fight to protect the American public from securities fraud. The Securities and Exchange Commission (the SEC or the Commission) announced in August 2016 that whistleblower award payouts had reached over $100 million.1 Specifically, the Commission has awarded thirty-four whistleblowers over $ 111 million dollars for providing information that led to successful enforcement actions.2 Jane Norberg, Chief of the Office of the Whistleblower, stated, "the total award amount demonstrates the invaluable information and assistance whistleblowers have provided to the agency and underscores the program's extraordinary impact on the agency's enforcement initiatives."3

In addition to paying out whistleblower awards, the SEC returned $584 million dollars to investors because of the cooperation of the whistleblowers; this underscores the "transformative effect the SEC's whistleblower program has had on the agency's enforcement program."4 Of the whistleblowers who were previously employed by the offending company, sixty-five percent of whistleblowers initially reported their complaints internally rather than directly to the SEC.5 Given the crucial and vital role that whistleblowers play in enforcing securities laws, "strong enforcement of the anti-retaliation protections is a critical component of the SEC's whistleblower program."6 As the SEC has stated, "if individuals are not assured that they will be protected from retaliation when they report internally, they will be less likely to report internally, which could undermine the important role that internal compliance programs play in helping the Commission prevent, detect, and stop securities law violations."7 With that in mind, the SEC brought a "firstof-its-kind" enforcement action by fding a stand-alone whistleblower retaliation case against a casino for firing an employee who reported securities violations to his superiors.8 Regardless of the SEC's desire to protect internal whistleblowers, circuit courts are split4 on whether Congress intended to extend protection to internal reporters under the Dodd-Frank Wall Street Reform and Consumer Protection Act (DoddFrank or the Act).10

The rise of corporate whistleblowers in recent years is largely due to a provision under the Sarbanes-Oxley Act of 2002 (SOX), which, among other things, protects employees of publicly traded companies from retaliation for their whistleblowing efforts by providing employees who bring a successful retaliation claim under the Act with a number of remedies. 11 Congress passed SOX in the wake of the Enron scandal12- followed by the WorldCom scandal13-which ultimately led to the dissolution of Arthur Anderson.14 SOX sought to "protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws"15 and required companies that issue public securities to adopt a number of extensive accounting and auditing procedures.16 To ensure companies complied with SOX, the statute provides a private right of action to employees who are subject to retaliation by their company after reporting securities law violations internally.17 After all, the Enron scandal was uncovered largely because of the efforts of internal whistleblowers.18

SOX was heralded by both politicians and scholars as the most important piece of legislative financial reform since the Securities Act of 193319 and the Securities Exchange Act of 193420 (the "Exchange Act").21 Whistleblower advocates also praised SOX for the extensive protections offered to corporate whistleblowers, internal and external alike.22 However, SOX turned out to be underwhelming in at least two significant ways: (1) it failed to protect whistleblowers;23 and (2) the measures mandated by SOX failed to address the corporate governance and auditing issues that led to Enron's collapse.24 In the first three years after SOX was passed, of the 361 whistleblower claims decided at the agency level, only thirteen were found in favor of the whistleblower, and of the ninety-three claims decided on appeal, only six were found in favor of the whistleblower. …

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