Uma análise dos recentes desenvolvimentos em matéria de denúncias

Whistleblower Developments is a periodic report covering significant cases, decisions, proposals, and legislation related to whistleblower statutes and how they may impact your business. Recent developments include:

• District Court Permits SOX Retaliation Claim Premised on Reporting Violations of SEC’s Rules on Internal Controls
• Long-Running SOX Whistleblower Case Ends with District Court Upholding Jury Verdict and Awarding $2.4 Million in Attorneys’ Fees
• Fifth Circuit Dismisses SOX Retaliation Claim for Lacking Sufficient Detail About Employee’s Internal Reports
• Circuit Courts of Appeals Deny Petitions for Review of SEC’s Award Denials
• SEC Issues $28 Million Award to Seven Whistleblowers
• SEC Issues Whistleblower Annual Report for FY 2023

District Court Permits SOX Retaliation Claim Premised on Reporting Violations of SEC’s Rules on Internal Controls

In Brinker v. Axos Bank, No. 22-cv-386-MMA-DDL, 2023 WL 7167851 (S.D. Cal. Oct. 31, 2023), the district court granted and denied in part a motion to dismiss SOX retaliation claims. The district court had previously dismissed, without prejudice, plaintiff Brinker’s SOX retaliation claim to the extent it was premised on, among other things: (1) reporting violations of the SEC’s internal controls rules under 17 C.F.R. §§ 240.13a-14 and 240.13a-15, because she had not sufficiently pleaded she believed the rules had been violated; and (2) reporting a violation of the Foreign Corrupt Practices Act (FCPA), because the FCPA is not an SEC “rule or regulation” under SOX § 1514A. (Click this link for our summary of this prior opinion.) Brinker filed another complaint, and the court again dismissed her retaliation claim to the extent it is premised on reporting an FCPA violation. However, the court permitted her claim to go forward to the extent premised on reporting internal controls violations. Although the court did not detail the changes Brinker made to her complaint, the court listed a “host of issues” Brinker alleged that sufficiently state a SOX retaliation claim based on reporting violations of the SEC’s internal controls rules.

Long-Running SOX Whistleblower Case Ends with District Court Upholding Jury Verdict and Awarding $2.4 Million in Attorneys’ Fees

In Erhart v. Bank of Internet (BofI) Federal Bank, No. 15-cv-02287-BAS-NLS (consolidated with 15-cv-02353-BAS-NLS), 2023 WL 6377971 (S.D. Cal. Sept. 28, 2023), the district court upheld a jury verdict and awarded attorneys’ fees against BofI for BofI’s violation of SOX’s anti-retaliation provisions. As reported previously, the plaintiff, a former internal auditor, sued his former employer in the United States District Court for the Southern District of California, alleging BofI retaliated against him for reporting wrongdoing to his supervisors and the government.

After years of litigation, the jury found that BofI violated SOX’s anti-retaliation provision and awarded Erhart $1.5 million in damages. The district court denied the bank’s motion for judgment as a matter of law or for a new trial, finding support for the jury’s verdict. In response to the bank’s argument that no reasonable jury could conclude the plaintiff had reasonably believed the bank was violating any of the laws covered by SOX’s anti-retaliation provision, the court stressed that the plaintiff did not have to prove an actual violation. The court noted that the plaintiff was not a lawyer, and if the court were to demand securities law expertise from the plaintiff “Sarbanes-Oxley’s anti-retaliation provisions will be gutted.”

The second decision, issued the same day, tackled the plaintiff’s request for an enhanced fee award in excess of $7 million. The court noted that SOX provides that a prevailing plaintiff is entitled to recover “compensation for any special damages sustained as a result of the discrimination, including litigation costs, expert witness fees, and reasonable attorney fees.” 18 U.S.C. § 1514A(c)(2)(C). The court found that work regarding the plaintiff’s successful defamation claim was related to the SOX claim and could be included in the attorneys’ fees calculation. The court also found that work defending against the bank’s counterclaims for, among other things, misuse of confidential information should also be included in the attorneys’ fees calculation. The court, however, did not accept all of the plaintiff’s arguments. It excluded some of the claimed hours, reduced the hourly rates requested and, most importantly, rejected the application of a significant multiplier to the lodestar calculation. Ultimately, the court awarded $2.4 million in attorneys’ fees.

Fifth Circuit Dismisses SOX Retaliation Claim for Lacking Sufficient Detail About Employee’s Internal Reports

In Seybold v. Charter Communications, Inc., No. 23-10104, 2023 WL 7381438 (5th Cir. Nov. 7, 2023), the Fifth Circuit Court of Appeals affirmed the district court’s judgment dismissing plaintiff Seybold’s SOX retaliation claim. Seybold claimed he was terminated for reporting his employer’s unlawful corporate behavior, including overreporting the number of accounts, setting unattainable sales standards, and making inaccurate commission calculations. Seybold’s allegedly protected activity was filing four reports to his supervisors. In dismissing the claim, the district court noted several issues, including whether either Seybold or Charter knew that Seybold was engaging in protected activity at the time and whether Seybold pled with sufficient particularity the content of his reports. The Fifth Circuit affirmed that Seybold did not sufficiently show the content of his reports — and thus could not show that his actions constituted protected activity under SOX — or that Charter believed the reporting to be protected activity. As the Fifth Circuit stated: “Seybold did not demonstrate that he actually blew the whistle.”

Circuit Courts of Appeals Deny Petitions for Review of SEC’s Award Denials

In Rao v. S.E.C., No. 23-1072, 2023 WL 8432468 (D.C. Cir. Dec. 5, 2023), the D.C. Circuit Court of Appeals denied a whistleblower’s petition for review of the SEC’s decision denying his award claim because the whistleblower’s information did not assist or contribute to the covered action. The whistleblower argued that the SEC should produce a “voice file” of a telephonic conversation he had with the SEC in 2016, but the Court found no basis that the whistleblower was entitled to this recording or that the recording was even part of the record at the time the SEC denied the whistleblower’s award application.

In Everhart v. S.E.C., No. 22-2049, 2023 WL 6937294 (9th Cir. Oct. 20, 2023), the Ninth Circuit Court of Appeals denied three whistleblowers’ petitions for review of the SEC’s decision denying their award claim. At oral argument, the evidence supported, and the whistleblowers did not challenge, the SEC’s finding that the whistleblowers’ tip did not cause or contribute to the investigation. In their briefs, the whistleblowers argued that under 15 U.S.C. § 78u-6(b)(1), the question is not whether the tip actually caused the SEC to open an investigation but that the tip should have caused the SEC to do so. The whistleblowers ultimately disclaimed that theory, and the Tenth Circuit ruled that the information must actually cause or contribute to the investigation.

SEC Issues $28 Million Award to Seven Whistleblowers

On December 22, 2023, the SEC announced an award of more than $28 million (combined) to seven whistleblowers whose information and assistance led to a successful SEC enforcement action. The seven whistleblowers consisted of a single claimant and two sets of joint claimants. The single claimant and one of the joint groups voluntarily provided detailed and highly significant information early in the investigation that, among other things, saved the SEC time and resources and resulted in millions of dollars being returned to harmed investors. These claimants also attempted internal reports to company management and suffered hardships as a result. The other joint group of claimants received a smaller award because they provided information late in the investigation and much of this information was already known.

SEC Issues Whistleblower Annual Report for FY 2023

On November 14, 2023, the SEC released its annual report for Fiscal Year (FY) 2023. The SEC’s Whistleblower Program broke yet more records this past year. In FY 2023, the SEC awarded nearly $600 million in awards, the highest annual total ever, to 68 whistleblowers (up from FY 2022’s $229 million and greater than FY 2021’s $564 million). The SEC also received more than 18,000 tips, up from FY 2022’s previous record of 12,300. In total, the SEC has now paid more than $1.9 billion in awards to 397 individual whistleblowers since the program’s inception.

In the report, the SEC summarized several noteworthy claims and awards, including a $279 million award in May, a claim in which a whistleblower made persistent efforts to remedy the reported misconduct, and several claims involving multiple whistleblowers providing complementary information.

The SEC also emphasized its actions concerning violations of anti-retaliation rules. The SEC summarized several actions in which companies violated Rule 21F-17 for including language that impeded potential whistleblowing activities in separation agreements. These actions, some of which involved violations of additional anti-retaliation rules, resulted in significant civil penalties, including: $10 million penalty to D.E. Shaw & Co., L.P.; $35 million penalty to Activision Blizzard, Inc.; $375,000 to CBRE, Inc.; and $225,000 to Monolith Resources, LLC.