SEC Rule Clarifies Protections for Financial Whistleblowers

In the wake of the fifth anniversary of Dodd-Frank, the Securities and Exchange Commission (SEC) released a much-needed interpretive rule on the scope of whistleblower protections within the law. In a letter to SEC Chair Mary Jo White, GAP and Labaton Sucharow LLP praised the Commission's leadership for corporate accountability through its first actions on two public interest petitions last year.

The rule clarifies that any disclosure protected by the Sarbanes Oxley Act is shielded from retaliation under its Whistleblower Program. In effect, protection extends to disclosures within a corporation, to other law enforcement audiences, or to the public. Protection also extends to any violation of federal law, not just those enforced by the SEC.

The move comes one year after GAP, Labaton Sucharow, and a coalition representing more than 250 organizations and nearly two million citizens, submitted petitions with the SEC that would clarify and strengthen certain aspects of the agency's Whistleblower Program. The letter cautions, however, that the SEC must take additional measures to address the remaining vulnerabilities identified last summer -

Our July 2014 petition emphasized that new and creative forms of corporate prior restraint are preventing disclosures from happening at all, making academic the issue of subsequent retaliation. Merely presenting employees with nondisclosure agreements creates a chilling effect, and there are no rights for refusing to agree - only for violating one with protected speech. Further, corporations regularly file breach of contract lawsuits, theft of corporate records actions, and other litigation attacks outside the employment context. Realistically, to prevent a chilling effect on the flow of evidence necessary for SEC oversight, it is necessary to go beyond interpretations that restrict harassment of incumbent employees.

The first petition (rulemaking from Labaton Sucharow and GAP) addresses unscrupulous legal maneuvers employed by many companies trying to silence potential whistleblowers. These include preventing employees from consulting independent legal counsel through the use of non-disclosure agreements, requirements for notice of external reporting, demands to waive any future whistleblower awards, and lawsuits to enforce secrecy agreements. These troubling legal tactics effectively topple each of the three pillars of the SEC Whistleblower Program - anonymous reporting, employment protections and monetary awards. The petition provides companies with clear guidance regarding these problematic employment agreements.

In recognition of these serious problems, a broad coalition of organizations, including Americans for Financial Reform, submitted a second petition (non-rulemaking) asking the SEC to: launch of series of public hearings to discuss the problem of workplace retaliation and ways to increase reporting, create an Advisory Committee on Whistleblower Reporting and Protection, and engage in appropriate rulemaking to clarify and strengthen whistleblower protections.