Una revisión de los últimos avances en materia de denuncia de irregularidades

Whistleblower Developments es un informe periódico que recoge casos, decisiones, propuestas y legislación significativos relacionados con las leyes de protección de los denunciantes y cómo pueden afectar a su negocio. Entre las novedades recientes se incluyen:

• Supreme Court Ends Circuit Split, Holds that Whistleblower Plaintiffs Need Not Prove “Retaliatory Intent”
• Second Circuit Upholds Finding that Reporting Violations of Mandatory Block Leave Does Not Fall under SOX’s Anti-Retaliation Protections
• Ninth Circuit Upholds Finding that Anti-Retaliation Provisions Did Not Apply Extraterritorially to Canadian Employee’s Claims
• SEC Settles Charges Against J.P. Morgan Securities LLC for US$18m
• SEC Alleges Rule 21F-17 Violation in Connection with US$300m Ponzi Scheme
• DOJ Announces Whistleblower Reward Program
• District Court of New Jersey Declines to Apply Heightened Pleading Standard to Anti-Retaliation Violation
• Q1 Sees Slow Start to 2024 for Whistleblower Awards
• Eleventh Circuit Denies Petition for Review of SEC’s Denial of Award

Supreme Court Ends Circuit Split, Holds that Whistleblower Plaintiffs Need Not Prove “Retaliatory Intent”

On February 8, 2024, in Murray v. UBS Securities, LLC, No. 22-660,the United States Supreme Court held that while a whistleblower must prove that his protected activity was a contributing factor in an employer’s unfavorable personnel action in violation of SOX, he need not prove his employer acted with retaliatory intent.

A jury had found in favor of Murray on a SOX anti-retaliation protection claim based on UBS firing him after he accused his superiors of pressuring him to skew his research. The Second Circuit reversed the jury’s verdict on appeal, holding that Murray failed to prove by a preponderance of the evidence that UBS fired Murray with retaliatory intent under Section 1514A. (See our discussion of this ruling in a prior newsletter, here.) The Supreme Court disagreed and reversed the Second Circuit’s decision. The Supreme Court reasoned that: (1) Section 1514A(a)’s text — specifically, the word “discriminate” — does not reference, include, or imply a “retaliatory intent” requirement; and (2) such a requirement would be contrary to the provision’s mandatory burden-shifting framework. The Court observed that this burden-shifting framework is intended to be plaintiff-friendly and requiring proof of “retaliatory intent” to satisfy the “contributing factor” element would undermine that framework. Rather, proof of “retaliatory intent” is just one way to satisfy that element.

The Supreme Court’s ruling resolves a circuit split on this issue and removes a significant hurdle for SOX whistleblowers alleging wrongful retaliation. In fact, federal courts have already cited and relied on this ruling since its issuance in February. E.g., Callahan v. HSBC Sec. (USA) Inc., 22-CV-8621 (JPO), 2024 WL 1157075 (S.D. N.Y. Mar. 18, 2024) (finding that plaintiff did not need to show retaliatory intent by employer to plausibly allege retaliation claim under SOX).

Second Circuit Upholds Finding that Reporting Violations of Mandatory Block Leave Does Not Fall under SOX’s Anti-Retaliation Protections

In La Belle v. Barclays Capital, Inc., No. 23-448, 2024 WL 878909 (2d Cir. Mar. 1, 2024), the Second Circuit affirmed the district court’s ruling that an employee’s reports regarding suspected violations of Barclays’ mandatory block leave (“MBL”) program were not protected disclosures under SOX’s anti-retaliation provision. (See our discussion of the district court ruling here.) The Second Circuit found that although the employee asserted that, at the time he made the reports, he subjectively believed that MBL was a regulatory requirement, such a belief was not objectively reasonable because MBL is not a legal requirement and therefore is “wholly untethered” from the enumerated provisions in Section 1514A. Noting that the enumerated provisions pertain to financial reporting and MBL does not, the court rejected the employee’s attempts to “shoehorn his MBL claim into one of the enumerated provisions of Section 1514A.”

Ninth Circuit Upholds Finding that Anti-Retaliation Provisions Did Not Apply Extraterritorially to Canadian Employee’s Claims

In Daramola v. Oracle America, Inc., 92 F.4th 833 (9th Cir. 2024), the Ninth Circuit upheld a finding that the Dodd-Frank and SOX anti-retaliation provisions did not apply extraterritorially to a Canadian employee’s claims, despite the employee’s job-related contacts with the United States. Daramola is a former employee of Oracle Canada. Daramola had reported internally and to the SEC his suspicion that customers were being defrauded. He subsequently was removed as lead project manager, his job performance rating was downgraded, and he ultimately resigned. Daramola sued Oracle America, alleging violations of SOX’s and Dodd-Frank’s anti-retaliation provisions. The United States District Court for the Northern District of California held that the provisions did not apply extraterritorially because Daramola’s principal worksite was in Canada.

Applying the two-step test under the “presumption against extraterritoriality,” the Ninth Circuit agreed. Step 1 of this test required the court to determine whether Congress affirmatively and unmistakably instructed that the provision should apply to foreign conduct. Because this is not the case with respect to either the Dodd-Frank or SOX provisions, the court found that neither provision overcomes the presumption. The court thus proceeded to Step 2, which asks whether the claim seeks a permissible domestic application of the provision, i.e., whether the conduct relevant to the statute’s focus occurred within the U.S. The court found that his job-related contacts with the U.S. did not overcome the critical foreign connections of his employment relationship, namely that he was a Canadian citizen, he resided in Canada at all relevant times, he was employed by a Canadian company, and his employment agreement expressly was governed by Canadian law. The court thus affirmed dismissal of both claims.

SEC Settles Charges Against J.P. Morgan Securities LLC for US$18m

On January 16, 2024, the SEC announced that it settled charges against J.P. Morgan Securities LLC (“JPMS”) for violating SEC Rule 21F-17, which prohibits taking action to impede a whistleblower from communicating with the SEC staff about potential securities law violations. The SEC alleged that JPMS had regularly asked retail clients to sign confidential release agreements if they had been issued a credit or settlement from JPMS of more than US$1,000. Pursuant to the release agreement, clients could respond to inquiries from the SEC but could not voluntarily communicate with the SEC concerning potential securities law violations. The SEC considered remedial actions promptly undertaken by JPMS, including revising the release agreement and notifying prior signees that they are not prohibited from voluntarily communicating with any governmental or regulatory authority. The SEC ordered that: (1) JPMS cease and desist from committing future violations of Rule 21F-17(a); (2) JPMS be censured; and (3) JPMS pay a civil penalty of US$18m.

SEC Alleges Rule 21F-17 Violation in Connection with US$300m Ponzi Scheme

On March 14, 2024, the SEC sued 17 individuals for allegedly participating in a US$300m Ponzi scheme involving CryptoFX LLC, which scheme targeted more than 40,000 investors. In its Fifth Claim for Relief, the SEC alleges that one of the defendants violated Rule 21F-17 by attempting to silence investors and prevent them from cooperating with the SEC. Specifically, the SEC alleges that, after a receiver had been appointed in the matter, this defendant told two investors that he would help obtain the return of their investment only if they retracted previous statements to the SEC and other authorities. This unique application of Rule 21F-17 illustrates the SEC’s broad ability to charge defendants with attempting to impede whistleblowers.

DOJ Announces Whistleblower Reward Program

On March 7, 2024, the Department of Justice announced its own whistleblower rewards program. The program will offer monetary rewards to whistleblowers who help the DOJ uncover significant corporate or financial misconduct. Qualifying whistleblowers may receive a portion of the resulting forfeiture, but only: (1) after all victims have been properly compensated; (2) if they submit truthful and novel information; (3) they are not themselves involved in the criminal activity; and (4) in cases where there is not an existing financial disclosure incentive (such as another federal whistleblower program). The program is designed to fill gaps to uncovering corporate and financial misconduct left by other federal whistleblower programs such as the SEC’s and CFTC’s programs. DOJ announced its pilot program is expected to begin later this year.

District Court of New Jersey Declines to Apply Heightened Pleading Standard to Anti-Retaliation Violation

In Pickholz v. TransparentBusiness, Inc., No. 22-2504 (ES) (JBC), 2024 WL 489543 (D. N.J. Feb. 8, 2024), the District Court of New Jersey held that retaliation claims brought under the Dodd-Frank Act, even those in which the underlying misconduct was fraudulent, are not subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b). Notwithstanding this ruling, the court dismissed the case. The court noted the consensus among courts that a plaintiff’s allegations cannot be “wholly untethered” from the elements of the law alleged to have been violated. The court found that while a “plaintiff need not prove an actual violation of the federal securities laws, a plaintiff must at least plead which laws he reasonably believed were violated, and what conduct he reported to the SEC.” The court dismissed the case because the plaintiff failed to specify what law he believed Defendants violated or what information he provided to the SEC.

Q1 Sees Slow Start to 2024 for Whistleblower Awards

The SEC issued several awards in Q1 but did not publish any press releases. In one order dated January 11, 2024, the SEC awarded US$1.5m  to a whistleblower who uncovered and reported the wrongdoing and who provided significant information and details about the violations. In another order on the same date, the SEC did not specify the dollar amount awarded but rather specified the award in terms of the percent of the amount to be collected in the underlying action. In a third order dated March 5, 2024, the SEC did not specify either the dollar amount or percentage. This may be because, per the order, “based on current collections” there would be “no payment.”

Eleventh Circuit Denies Petition for Review of SEC’s Denial of Award

In Meisel v. SEC, No. 22-14011, — F.4th —-, 2024 WL 1297655 (11th Cir. Mar. 27, 2024), the Eleventh Circuit denied a whistleblower’s petition for review of the SEC’s denial of an award. Meisel’s application for an award related to an SEC action that Meisel had read about in a newspaper. Meisel suspected that his former tenant was part of the scheme, so Meisel notified the SEC of his suspicions and, after judgment was entered against the defendants in the action, Meisel applied for a whistleblower award. The SEC denied him an award, explaining that: (1) Meisel first provided information after the SEC filed its complaint; and (2) Meisel’s information did not advance the investigation. The Eleventh Circuit rejected Meisel’s claim that the SEC’s decision was arbitrary and capricious. The court also rejected Meisel’s argument that the SEC did not properly credit him for the assistance he gave to a court-appointed receiver. Although the receiver stated that Meisel’s information was “new” and “unknown” to him at the time, Rule 21F-9 requires that information be provided to the SEC, not to a receiver, which is an officer of the court, not an agent or representative of the SEC.