Whistleblower Law Blog

SEC Reports 334 Whistleblower Tips and 170 Enforcement Orders in First Seven Weeks of Whistleblower Award Program

November 21, 2011

The Securities and Exchange Commission released its first annual report on the new SEC Whistleblower Award Program, covering the period from the program’s inception on August 12 to the end of fiscal year 2011 on September 30.  During those seven weeks, the Commission received an astounding 334 whistleblower tips from individuals in 37 states, as well as from individuals in several foreign countries, including China and the United Kingdom.  The most common categories for tips regarded allegations of market manipulation, false corporate disclosures and financial statements, or outright fraud.

The Commission also explained the process by which whistleblowers who report securities law violations can claim an award if the information reported results in sanctions:

The award process begins following the entry of a final judgment or order for monetary sanctions that . . . exceed $1 million.   Following the entry of such judgment or order, the Office of the Whistleblower publishes a Notice of Covered Action. . . .  Once a Notice of Covered Action is posted, individuals have 90 calendar days to apply for an award. . . .

Since August 12, the Office of the Whistleblower has posted notices for 170 enforcement judgments or orders for which whistleblowers would be eligible for an award if the Commission receives the whistleblower’s application within 90 days.

The Commission has not yet issued awards under the new program, because applications from the first set of notices will not be processed until the beginning of fiscal year 2012.  In the meantime, SEC officials have noted the high quality of the whistleblower tips they have received and expect to issue the first awards under the new program soon.

Related articles

• CFTC Adopts Favorable Rules for Whistleblower Reward Program (employmentlawgroupblog.com)
• SEC Receives First Claims for Tips Rewards (online.wsj.com)

Lawmakers Push to Add Stricter Reporting Regulations in Sexual Abuse Cases in Wake of Penn State Scandal

November 16, 2011

In wake of the child sexual assault allegations against former Penn State Assistant Coach Jerry Sandusky that have shocked the nation, lawmakers across the U.S. are moving quickly to tighten up rules on who must report the sexual abuse of a child.  State legislatures are likely going to debate whether new laws are needed to shore up vague guidelines and policies regarding child safety on campus. As the law currently stands, Pennsylvania educators aware of child abuse are merely required to report it to their workplace superiors.

Pennsylvania Gov. Tom Corbett, a Republican, stated:

“The assistant coach who in 2002 witnessed former Penn State assistant coach Jerry Sandusky allegedly abusing a child met the minimum obligation of reporting it up to head coach Joe Paterno, but the assistant did not, in my opinion, meet a moral obligation.”

Corbett also mentioned that within the next few weeks, state lawmakers would introduce bills to explicitly outline educators’ responsibilities if they witness or suspect child abuse.

Iowa, Maryland and New York are also considering tougher laws regarding the reporting of child abuse.

TELG Principal Quoted in Law360 Regarding New Sarbanes-Oxley Whistleblower Regulations

November 10, 2011

The Employment Law Group® law firm principal attorney Nick Woodfield was quoted in a Law360 article regarding the Occupational Health and Safety Administration’s (OSHA) recently published interim final rules.  These rules implement the changes made to the whistleblower provisions of the Sarbanes-Oxley Act (SOX) as mandated in last year’s Dodd-Frank Wall Street Reform and Consumer Protection Act.

Among the changes in the interim final rules is a provision allowing SOX whistleblower complaints to be submitted in either oral or the traditional written format, though corporate attorneys have called the new regulation permitting oral complaints unfair, attorneys who represent employees see the new approach as consistent with Supreme Court precedent.  Law360 reports:

Attorney Nick Woodfield of The Employment Law Group®, a firm that represents employees, said the rule was simply following the reasoning of the U.S. Supreme Court’s March ruling in Kasten v. Saint-Gobain Performance Plastics Corp., which held that the Fair Labor Standards Act shielded workers from retaliation for verbal as well as written complaints.

Arguing that the regulations should interpret the term “complaint” in a manner that’s inconsistent with the Supreme Court doesn’t make sense, and gripes about allowing SOX claimants to bring oral complaints “would have been a lot better taken before the Kasten decision,” Woodfield said.

“While it’s lowering the bar to get into the administrative hearing process, it’s really just making it consistent with other threshold civil rights complaint pleading standards,” he said.

OSHA Releases New Sarbanes-Oxley Whistleblower Rules

November 10, 2011

On November 3, 2011, the Occupational Safety and Health Administration (OSHA) published interim final rules that modify regulations pertaining to whistleblower complaints filed under the Sarbanes-Oxley Act of 2002 (SOX). The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 contained amendments that strengthen SOX whistleblower provisions.  The recently released interim rules aim to bring SOX whistleblower regulations in line with the Dodd-Frank amendments and OSHA regulations for other whistleblower programs.

Broader protections for whistleblowers under Dodd-Frank Amendments

Significantly, Dodd-Frank extended protection for employees against workplace retaliation by credit rating agencies and other “nationally recognized statistical rating organizations” as defined in the Securities Exchange Act of 1934. 15 U.S.C. § 78c.  The new OSHA rules adopt this definition and, similarly, modify the definition of “company” to mirror the definition under the Sarbanes-Oxley Act.

Extended complaint filing period and acceptance of oral complaints

Additionally, the regulations have been changed to reflect statutory changes to complaint filing procedures, extending the filing period for retaliation complaints under Sarbanes-Oxley from 90 to 180 days after either the violation occurs or after the date on which the employee became aware of the violation. Most notably, the new rules clarify that oral complaints to OSHA are permitted, whereas previously the rules indicated that only written complaints are allowed. This change is consistent with OSHA procedural requirements under other whistleblower statutes. If a complaint is made orally, OSHA will create a written record of the complaint.  Moreover, complaints may be filed in any language if the complainant is unable to file in English, and others may file on the behalf of the employee if the employee has given consent. Finally, the complainant may provide notice of withdrawal of a complaint orally or in writing.

OSHA notes that allowing oral complaints is consistent with Administrative Review Board (ARB) decisions that have long allowed oral complaints under certain environmental and asbestos statutes.  Also influencing OSHA’s decision is the Supreme Court’s ruling in Kasten v. Saint-Gobain Performance Plastics Corp., 131 S. Ct. 1325 (2011), which held that oral complaints of regulatory violations are protected under the anti-retaliation provision of the Fair Labor Standards Act.  SOX does not prescribe any particular form for complaints filed under the statute.

Dodd-Frank Amendments right to review in federal district court

Another change to Sarbanes-Oxley made by Dodd-Frank and reflected in the rule changes relates to the right to a jury trial in actions brought under the Sarbanes’ “kickout” provision. 18 U.S.C. § 1514A (b)(1)(B). This provision gives the complainant a right to bring a de novo action in federal district court, regardless of the amount in controversy, if the Secretary of Labor fails to issue a final decision within 180 days of a complaint being filed, provided that the delay is not the result of bad faith on the part of the complainant.

More thorough review of parties’ positions during investigation

The interim rules section pertaining to the investigation of complaints brings investigative procedures under SOX in line with procedures under other OSHA whistleblower statutes. The new rules require that during the investigatory process OSHA provide the complainant with a copy of the responding party’s submission so that the complainant has an opportunity to respond.  According to OSHA, this change will enhance its ability to conduct full and fair investigations and allow more thorough assessments of the respondents’ defenses.

Broader relief available for whistleblowers

The new rules omit the provision in SOX which deemed reinstatement inappropriate where the respondent demonstrates that the complainant is a security risk.   OSHA’s explains in the interim rules that the issue of whether reinstatement is appropriate should be made “on the basis of the facts of each case and the relevant case law;” therefore, it is unnecessary to define the precise situations in which reinstatement is inappropriate. The rules also state that OSHA may order “economic reinstatement,” which is similar to an order of “front pay” under the Federal Mine Safety and Health Act of 1977 and may be granted instead of the typical preliminary reinstatement when reinstatement may not be appropriate or inadvisable.  Economic reinstatement requires that the employer pay the employee wages without the employee having to return to work.  Employers are not entitled to choose economic reinstatement, nor do they have any basis for recovering the costs of economic reinstatement in the event that the employer eventually prevails in the adjudication.

Non-substantive changes in terminology

OSHA has made certain non-substantive changes to terminology to ensure consistency with procedural rules under other statutes. Specifically, cases under the whistleblower provision of Sarbanes-Oxley are now referred to as actions alleging “retaliation” and no longer “discrimination,” individuals previously referred to in such complaints as “named persons” are now called “respondents,” and “unfavorable personnel actions” are now called “adverse actions”.

The interim final rules are currently available here.  Interested parties are invited to comment by January 3, 2012. Comments may be submitted electronically at http://www.regulations.gov or by fax or mail with further instructions found here.

Supreme Court May Limit Federal Employees’ Access to Federal Court to Challenge Constitutionality of Terminations

November 09, 2011

On October 17, 2011, the United States Supreme Court granted certiorari in Elgin v. United States Dept. of the Treasury and will decide whether federal district courts have jurisdiction to hear constitutional claims brought by federal employees seeking equitable relief. Early in 2012, the Supreme Court will review the decision of the U.S. Court of Appeals for the First Circuit, which held in a divided panel decision that discharged federal employees seeking to challenge their terminations on constitutional grounds do not have access to federal district courts. Without access to federal district courts to hear such claims, the Petitioners in Elgin argue, they would be left without an adequate forum to address violations of their constitutional rights. Currently, federal appellate courts are split over the question of whether terminated federal employees may bring suit in federal district courts alleging that the government violated their constitutional rights. The Supreme Court’s decision in Elgin will have major implications for federal employees who wish to challenge adverse employment actions on constitutional grounds.

The Petitioners in Elgin are former federal employees who were terminated under 5 U.S.C. § 3328, which permanently bars from federal employment men who knowingly and willfully fail to register with the Selective Service upon reaching the age of 18. Each of the Petitioners in Elgin claims that he did not knowingly or willfully violate the statute; some were unaware of the Selective Service registration requirement, and others believed that they had met the requirement, despite the Selective Service having no record of their registration.

After the Department of the Treasury terminated his employment, Petitioner Elgin appealed to the Merit Systems Protection Board (MSPB) , arguing both that 5 U.S.C. § 3328 is an unconstitutional Bill of Attainder and that the statute subjected him to discrimination on the basis of sex because the requirement to register with the Selective Service applies only to men. The Constitution prohibits Bills of Attainder, laws that declare an individual or a group of people guilty of a crime and then impose punishment without a trial. The MSPB dismissed Elgin’s appeal, claiming that it lacked jurisdiction because Congress did not grant the MSPB authority to review the constitutionality of statutes. Joined by three other former federal employees, Elgin then filed suit against the government in the U.S. District Court for the District of Massachusetts claiming that the lifetime bar on federal employment for men who failed to register with the Selective Service was unconstitutional. The employees sought reinstatement of their employment.

The District Court initially granted the Petitioners’ motion for partial summary judgment and held that the statute was, indeed, a Bill of Attainder. The lower court also partially granted the Government’s motion to dismiss, ruling that the Selective Service system did not deprive the Petitioners of equal protection. The Government then sought reconsideration of the court’s partial grant of summary judgment on the merits, raising a new argument that federal district courts altogether lack subject matter jurisdiction to review federal employment decisions because the CSRA precludes such district court review. The District Court held that it does have jurisdiction over constitutional claims brought by federal employees, but reversed its previous finding that the statute in question is a Bill of Attainder. The former employees then appealed to the Court of Appeals for the First Circuit, which affirmed the lower court’s decision on the merits of the claims. However, in a split decision, the First Circuit reversed the District Court’s finding on the question of jurisdiction.

The First Circuit held that that the Civil Service Reform Act (CSRA), 92 Stat. 1111 et seq., provides the exclusive remedy for former federal employees who wish to challenge the constitutionality of a termination. According to the appeals court, the CSRA does not allow employees direct access to federal district courts for review of constitutional claims. Federal employees covered under the CSRA are entitled to appeal terminations to the MSPB – an independent governmental agency – and thereafter may appeal an MSPB decision to the U.S. Court of Appeals for the Federal Circuit. The Federal Circuit has repeatedly held that the scope of subject matter jurisdiction of both the Federal Circuit and the MSPB is identical. In a concurring opinion, Judge Stahl noted that the CSRA does not explicitly preclude discharged federal employees from bringing suit in federal district courts.

The First Circuit’s intra-court disagreement is not unique; other federal circuits have been similarly divided on the question of district court jurisdiction over federal employee constitutional claims for equitable relief. The result is a significant circuit split: The First, Second, and Tenth Circuits have held that the CSRA impliedly precludes federal district courts from hearing the constitutional claims of federal employees seeking injunctive or other forms of equitable relief, whereas the Third and D.C. Circuits have held that the CSRA does not preclude federal district courts from exercising such jurisdiction (with the Ninth Circuit holding that at least in some circumstances it is allowed). Three others circuits have acknowledged the split but have avoided the question entirely.

The circuits that limit federal court jurisdiction on these matters reason that because the CSRA provides a comprehensive framework for addressing the employment rights of federal employees, it impliedly precludes federal court jurisdiction. Furthermore, these circuits have held that the CSRA precludes both claims for monetary and equitable relief.

In urging the Supreme Court to grant review of the First Circuit’s decision, the Petitioners in Elgin relied for support on a line of decisions in which federal district courts allowed federal employees to seek equitable relief for constitutional claims, though the court rejected related claims for monetary damages. In one such case, Hubbard v. EPA, the D.C. Circuit held that the CSRA does indeed provide federal employees a comprehensive remedial framework that precludes employees from seeking damages in federal court as a remedy for constitutional violations. The Court went on to point out that the statute does not, however, explicitly prohibit federal district courts from granting injunctive relief to remedy unconstitutional employment actions by federal agencies. In Spagnola v. Mathis, the D.C. Circuit reaffirmed the right of federal employees to seek equitable relief for constitutional violations. Consistent with these decisions, Elgin Petitioners contend that because federal courts have traditionally granted equitable relief as a remedy for violations of constitutional rights, courts should not interpret remedial statutes such as the CSRA to preclude equitable relief unless Congress explicitly provides a statement to that effect in the statute.

Truck Driver Awarded Back Pay and Damages in Surface Transportation Assistance Act Whistleblower Claim

November 04, 2011

Cynthia Ferguson, an independent truck driver with over 15 years of experience, recently prevailed in a retaliation claim against New Prime Inc., a Missouri-based trucking company, under the whistleblower provisions of the Surface Transportation Assistance Act (STAA). New Prime terminated Ferguson after she refused to follow its dispatcher’s order to continue driving on a hazardous stretch of mountain road in inclement weather.

The whistleblower provisions in the STAA protect commercial truck drivers who were retaliated or discriminated against because they refused to drive under dangerous conditions. The Department of Labor Administrative Review Board (ARB) found that New Prime directly violated the STAA when it terminated Ferguson. In addition to ordering New Prime to reinstate Ferguson, the ARB awarded her $75,000 in back pay and $50,000 in punitive and compensatory damages.

Attorney R. Scott Oswald Quoted in Law360 Regarding Sarbanes-Oxley Decison

October 24, 2011

R. Scott Oswald, Managing Principal of The Employment Law Group® law firm, discusses in the Law360 article titled Revival of SOX Case Stokes Confidentiality Concerns, which outlines the U.S. Department of Labor Administrative Review Board’s blockbuster holding in Vannoy v. Celanese Corp. 

Whistleblower Matthew Vannoy noticed potential weaknesses in his employer’s credit card reimbursement program and reported those weaknesses internally and to the IRS.  Some of the documents Vannoy sent to the IRS included confidential employer information such as employee home addresses and social security numbers.   The ARB held that disclosures containing employer confidential information are protected disclosures under the SOX whistleblower provisions so long as those disclosures contain original information evidencing the purported securities law violation.

R. Scott Oswald of the Employment Law Group, which represents employees, said that with the exception of the May 25 decision in Sylvester v. Parexel, the Vannoy decision was the most significant ruling to come out of the ARB in 2011.

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“It will facilitate cooperation between whistleblowers and the law enforcement agencies that Congress has designated to root out fraud in the corporate sector,” Oswald said of the Vannoy ruling.

According to Oswald, the Vannoy decision eviscerates the argument that using or supplying information that an employer deems confidential to a government body may serve as the basis for disciplinary action.

How the ALJ will rule is still an open question, but if there’s a nexus between the documents Vannoy accessed and his tax fraud allegations, that would be enough to trigger the protections of SOX, he said.

Related articles

• R. Scott Oswald Interviewed by Legal Bisnow (executivecounselblog.com)
• TELG Managing Principal Scott Oswald Quoted on Senator Johnson’s Executive Compensation (executivecounselblog.com)
• TELG Principal Named Top Ten Leader in Employment Law for Washington, D.C. Metropolitan Area (executivecounselblog.com)

Dentist Pays $212K Settlement for Fraudulently Billing Medicaid

October 24, 2011

Kristi Rossomando and her dental practice, The Children’s Dental Group P.C. agreed to pay $212,000 to settle claims that her practice fraudulently billed Medicaid for comprehensive oral evaluations that were never performed and for allowing staff to routinely provide care that should only be performed by a licensed dentist.

Rossomando allegedly directed a hygienist to see patients on their first visit, but then the hygienist- instead of a dentist- made treatment recommendations. However, Rossomando billed Medicaid as if she were the one performing a comprehensive oral evaluation. Medicaid would even receive bills on days Rossomando was not in the office. This was discovered after Olivia Estrada, the mother of a child treated by Rossomando, discovered the unlawful practices and reported those practices to the government.

Fraudulently billing Medicaid is a violation of both state and federal False Claims Acts, under which whistleblowers are entitled to a percentage of the settlement money. Accordingly, Estrada will receive $31,800 from the $212,000 settlement.

OSHA Awards $99K to Environmental Whistleblower

October 21, 2011

The U.S. Occupational Safety and Health Administration (“OSHA”) awarded $99,000 to Gy Bennar, a former Head Greens Keeper at an Oklahoma golf course, for blowing the whistle on illegal wastewater treatment practices. Southwestern Oklahoma Development Authority (“SWODA”) managed the public golf course.

Over the course of four years, Bennar allegedly witnessed SWODA using water from an adjacent sewage treatment plant to irrigate the golf course. Since the water was not properly chlorinated patrons and workers were exposed to harmful toxins. Bennar reported this to his supervisors but his complaints were ignored.

In March 2010, while Bennar was working towards his wastewater-treatment license from the Oklahoma Department of Environmental Quality (DEQ) Bennar discovered that SWODA was engaging in unlawful irrigation practices. In August 2010, he reported SWODA to Oklahoma’s DEQ, the Environmental Protection Agency (EPA) and the Governor of Oklahoma. A week after he blew the whistle, SWODA terminated Bennar.

OSHA held that the events surrounding SWODA’s termination of Bennar were violations of both the Clean Water Act and the Safe Drinking Water Act. Both acts prohibit retaliation against an employee for reporting violations of antipollution laws. In accordance with federal whistleblower law, OSHA ordered SWODA to pay $99,040 in damages and attorneys’ fees under federal whistleblower law. SWODA must also remove any negative information in Bennar’s file and must refrain from giving any negative references to prospective employers. To prevent future violations, OSHA ordered that SWODA disseminate whistleblower rights material to all of its present and future employees.

TELG Attorney Scott Oswald Discusses Landmark SOX Whistleblower Decision for LawyersUSA

October 20, 2011

The Employment Law Group® attorney R. Scott Oswald discusses the landmark Menendez decision with LawyersUSA in an article titled SOX whistleblower decision creates employer problems.  The Department of Labor Administrative Review Board (ARB) ruled that a failure of management to maintain the confidentiality of a whistleblower is a violation of the anti-retaliation provision of the Sarbanes-Oxley Act (SOX).  Mr. Oswald outlines the positive consequences of the decision for whistleblowers:

According to R. Scott Oswald, the managing partner of Washington, D.C.-based law firm The Employment [Law]Group, “this is a very significant ruling [because] for the first time, the act itself of revealing a whistleblower’s identity can be an adverse action under the statute.”

Whistleblowers may now feel safer coming forward to report information, he said, knowing their identity will be kept confidential.

* * *

Oswald said the decision adds “teeth” to existing confidentiality policies.

Most companies have a policy that they will maintain a whistleblower’s confidentiality, he said. “But in reality, many corporations do not maintain adequate internal controls over their disclosure protocols.”

The Menendez decision provides additional incentives to employers to maintain confidentiality going forward, in part because the ARB said that damages may be available.

Menendez could receive “special damages” under Sarbanes-Oxley, said Oswald, which could include recovery for the damage to his reputation as well as emotional distress.

In addition to establishing that the act of breaching confidentiality is actionable, the decision also changes the standard for what constitutes an adverse action.

The ARB “articulated a more favorable iteration of adverse action than defined under other whistleblower statutes,” explained Oswald.

As a practical matter, this more generous standard will allow more cases to survive summary judgment, he said.