gation was “acting jointly” with the law firm in reporting information to the SECand therefore was protected by the anti-retaliation provisions even if the employ-ee himself had not contacted the SEC.
Egan v. TradingScreen
, (S.D.N.Y. 2011).The Ninth Circuit U.S. Court of Appealsrecently held that the whistleblower pro-tections provisions of SOX did not apply to disclosures of corporate misconductto the media because such disclosures were not specifically protected by thestatute.
Tides v. The Boeing Co.
, 11 C.D.O.S.5212. This holding should apply as wellto Dodd-Frank.
Whistleblowers are eligible for awardsonly when they “voluntarily” provideoriginal information about possible se-curities law violations to the SEC. A sub-mission will not be deemed voluntary if it occurs after any request, inquiry ordemand for information that is directedto the individual (or the individual’s at-torney) that relates to the subject mat-ter of the submission and is by the SECor a number of other regulatory bodies.Information will not be considered “vol-untary” after such a request even if a re-sponse is not compelled by subpoena. Asubmission also is not considered vol-untary if the whistleblower was requiredto report the information to the SEC as aresult of a pre-existing legal duty; a con-tractual duty owed to the SEC; or a duty arising out of a judicial or administrativeorder. An individual still would be eli-gible for an award after being contactedby the SEC so long as the submission wasunrelated to the subject of the SEC’s in-quiry.Only a request directed to the individ-ual precludes a “voluntary” submission.Thus, a SEC request for information tothe individual’s employer does not pre- vent the employee from subsequently making a voluntary submission of in-formation, although generally a whistle-blower will not be eligible for an award if his information was derived exclusively from a SEC or internal investigation(subject to exceptions discussed below).The SEC warned that individuals who wait to make their submission until aftera request is directed to their employer“will not face an easy path to an award.”Further, the SEC suggests that informa-tion submitted after an employee is in-terviewed by the SEC in connection withan investigation into the company willnot be considered voluntary.To be considered “original informa-tion,” it must be 1) derived from the in-dividual’s independent knowledge orindependent analysis; 2) not already known to the SEC from any source, un-less the whistleblower is the originalsource of the information; 3) not exclu-sively derived from an allegation madein a judicial or administrative hearing,a governmental report, hearing, audit orinvestigation, or from the news media,unless the whistleblower is a source of the information; and 4) provided afterthe July 21, 2010, enactment of Dodd-Frank.“Independent knowledge” refers tofactual information in the whistleblow-er’s possession “that is not derived frompublicly available sources.” A personmay acquire independent knowledgefrom the “experiences, communicationsand observations in” business or socialinteractions. Thus “independent knowl-edge” is not limited to a person’s direct,first-hand knowledge.“Independent analysis” involves an“examination and evaluation of infor-mation that may be publicly available,but which reveals information that isnot generally known or available to thepublic.” Such an analysis must be morethan merely pointing to disparate pub-lic information that the whistleblowerassembled, but rather requires “someadditional evaluation, assessment, or in-sight.” A classic example is the analysis by Harry Markopolos, who, based on pub-licly available information, unsuccess-fully sought to alert the SEC that BernieMadoff was operating a Ponzi scheme.Even if the SEC already possesses in-formation about a matter, the whistle-blower’s submission will be consideredoriginal if she provides information that“materially” adds to the SEC’s knowl-edge. Thus, if B makes a submissionbased on information obtained from A,and A later makes her own submissionof that information, A will be consideredthe “original source” of the information.However, B may still be eligible for anaward because she submitted informa-tion derived from “independent knowl-edge,” i.e., whistleblower A. Further, be-cause of being first-in-time, B might havean advantage over A if B’s submissioncaused the SEC to open an investigationthat led to a successful enforcement ac-tion, while A would share in any rewardonly if her subsequent information “sig-nificantly contributed” to the success of the SEC’s action.
PerSonS ineligible for An AWArd
The SEC Rules preclude whistleblowerawards to those corporate officials andthird parties who have the principal re-sponsibility for preventing and investi-gating possible securities law violations.However, the exclusions are complicatedand likely will generate controversy.The following persons are not eligible whistleblowers:
• An officer, director, trustee or partner
of an entity who learned of informationconcerning misconduct from anotherperson or through the company’s inter-nal compliance mechanisms.
• Employees whose principal duties
involve compliance or internal audit re-sponsibilities, or persons employed by or associated with a firm retained to per-form compliance or internal audit func-tions.
• Persons employed by or associated
with a firm retained to conduct an in-quiry or investigations into possible vio-lations.
• Employees of or persons associ
-ated with a public accounting firm wholearned through an audit engagementinformation relating to violations by theclient or the clients, directors, officers oremployees.The first exclusion does not preventthe designated persons from becomingeligible whistleblowers if they personally observed violations. Thus, the company’sCFO could become an eligible whistle-blower by discovering that the CEO wasengaging in securities law violations.Further, these exclusions do not apply if 1) the person had a reasonable basisto believe that disclosing informationto the SEC was necessary to prevent thecompany “from engaging in conductthat is likely to cause substantial injury to the financial interest or property of the entity or investors”; 2) there was areasonable basis to believe that the com-pany was impeding an investigation,such as destroying documents or influ-encing potential witnesses; or 3) at least120 days had elapsed since the whistle-blower provided the information to the