Presenting a live 90-minute webinar with interactive Q&A Employee Whistleblower Claims Under SOX and Dodd-Frank Minimizing the Risk of Claims, Preparing for Litigation, and Preserving Arguments for Appeal TUESDAY, OCTOBER 9, 2012 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Margaret H. Campbell, Shareholder, Ogletree Deakins Nash Smoak & Stewart , Atlanta Mike Delikat, Partner, Orrick Herrington & Sutcliffe , New York Thad Guyer, Esq., T.M. Guyer and Ayers & Friends , Medford, Ore. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Employee Whistleblower Claims Under SOX and Dodd-Frank Minimizing the Risk of Claims, Preparing for Litigation, and Preserving Arguments for Appeal October 9, 2012 Margaret (Meg) Campbell, Shareholder Ogletree Deakins Nash Smoak & Stewart, Atlanta 404-881-1300 Meg.campbell@ogletreedeakins.com Mike Delikat, Partner Orrick Herrington & Sutcliffe, New York 212-506-5230 mdelikat@orrick.com Thad Guyer T.M. Guyer and Ayers & Friends, Medford, Oregon 888-866-4720 thad@GuyerAyers.com
The Regulatory Front 6
Dodd-Frank Wall Street Reform and Consumer Protection Act • Enacted July 21, 2010, final regulations last summer, in response to financial crisis. • Whistleblowers who provide the SEC with original information about violations of securities laws will be awarded a share of between 10% and 30% of monetary sanctions ultimately imposed by the Commission that exceed $1 million. 7
Internal Reporting is Discouraged Under Dodd-Frank • Whistleblowers are not required to first report violations internally before reporting to the SEC despite the existence of policies requiring internal reporting. • Companies may not take “any action to impede an individual from communicating directly with the SEC about a potential securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement.” 8
Whistleblower Tips by Allegation Type Source: U.S. Securities and Exchange Commission Annual Report on the Dodd-Frank Whistleblower Program Fiscal Year 2011 Published November 2011 9
Whistleblower Tips Received by Geographic Location – Overseas 8/12/2011 – 9/30/2011 Source: U.S. Securities and Exchange Commission Annual Report on the Dodd-Frank Whistleblower Program Fiscal Year 2011 Published November 2011
Bounty Rules in Practice • Anecdotal evidence indicates whistleblower complaints and internal investigations are on the rise, and some whistleblowers are bypassing company whistleblower reporting systems and heading straight to the SEC. • However, the SEC inadvertently disclosed the identity of a whistleblower during an investigation of Pipeline Trading Systems LLC, when an SEC lawyer showed an executive who was being questioned a notebook from the whistleblower, which could deter reports to the SEC. • SEC pays first financial bounty award under Dodd-Frank in August 11
Recent Developments With Respect To Bounty Provisions • SEC may or may not choose to inform companies that investigations are the result of whistleblower tips. • Quality of tips has improved since passage of Dodd-Frank. • SEC expects about half of tips to lead to formal money claims. • In addition to SEC’s recent bounty award, IRS awarded a whistleblower $104 million this month under its bounty program. 12
SEC Updates • Sean McKessy, Chief of the SEC’s Office of the Whistleblower, said that his office has received approximately 2,000 calls to the SEC’s whistleblower hotline since May 2011. The office has posted a list of over 300 successful enforcement actions on the site for which bounty awards may be claimed. Sean McKessy, Chief Jane Norberg, Deputy Chief 13
SEC Updates McKessy also said in response to criticism that the new rules would cause whistleblowers to sidestep companies’ internal SOX reporting processes, that based on his own review of the whistleblower complaints to date, a majority of whistleblowers indicated on the SEC’s whistleblower reporting form that they had also reported the issue to their employer. 14
SEC’s Whistleblower Award Chest is Fully Funded $452,000,000 15
Notwithstanding Uptick In Whistleblower Activity, Most Employees Remain Unaware Of The SEC Bounty Program* • 83% of Americans would report wrongdoing with protections and incentives such as those offered by the SEC Whistleblower Program, but • Only 28% are aware of the SEC bounty program. • Tremendous potential for further growth in whistleblower reports as publicity of program increases. * Source: Labaton Sucharow LLP 2 nd Annual Ethics & Action Survey, Sept. 2012 16
Best Practices For Surviving The Perfect Storm Recent survey found*: • 54% of Americans believe they have personally observed or have first-hand knowledge of wrongdoing in the workplace. • 24% of Americans would fear retaliation if they reported wrongdoing in the workplace. • 20% believe that any report of wrongdoing would be handled inappropriately by their employer. Source: Labaton Sucharow LLP 2 nd Annual Ethics & Action Survey, Sept. 2012 17
Dodd- Frank’s Whistleblower Anti -Retaliation Provisions • In addition to bounty provisions, SEC and CFTC provisions prohibit retaliation and create private causes of action for whistleblowers. • Although the plain language of both provisions appear to limit protection to those who make reports directly to the SEC/CFTC, employees are filing retaliation claims based on internal whistleblowing, with some success. • SOX: whistleblower protections expanded under Dodd-Frank. • Section 1057 of Dodd-Frank created a new, lesser known, cause of action for whistleblowers in the consumer financial services industry. 18
SOX Case Law Developments
Obama Administration’s New ARB • Paul Igasaki: Former Commissioner of the EEOC • Joanne Royce: Former General Counsel of the Government Accountability Project, a firm representing whistleblowers • Luis Corchado: Former civil rights attorney • Lisa Wilson: Former civil rights attorney • E. Cooper Brown: Former administrative judge and law firm partner 20
Sylvester v. Parexel International LLC 2007-SOX-39, 2007-SOX-42 (ARB May 25, 2011) • First major SOX case by new ARB. • Erodes employer-friendly precedents under SOX. • “SOX claims are rarely suited for Rule 12 dismissals.” • Complainants do not need to demonstrate that their complaints “definitively and specifically” related to a SOX - enumerated violation. • SOX complaints do not need to relate to shareholder fraud. • Complainants do not need to plead, prove or approximate the elements of fraud to prove a reasonable belief of a SOX- enumerated violations. 21
Menendez v. Halliburton, Inc. 2007-SOX-5 (ARB Sept. 13, 2011) • “Adverse action” is broader under SOX than Burlington Northern standard. • Includes any unfavorable employment action that is “more than trivial,” and is not limited to “economic or employment related items.” • Halliburton violated SOX by “breaching confidentiality” with respect to a non-anonymous complaint Menendez made to the Audit Committee. • Revelation of Menendez’s identity in a litigation hold memo was in violation of SOX Section 301’s “right to confidentiality,” which is a term and condition of employment. • “Nothing in Section 806 requires a showing of retaliatory intent.” 22
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