SEC Whistleblower Retaliation Protection: When the Complaint Becomes the Problem

The SEC enforces whistleblower retaliation protection under Dodd-Frank, which requires a written report to the SEC before retaliation occurs. If the conversation at work shifted from the accounting or trading problem to the person who reported it, we work through the evidence and the employment questions with you.

This page follows the employer’s response to a securities report through SEC enforcement cases. Our broader page on reporting securities fraud to the SEC covers how we help turn what you know into a case.

Does the SEC Protect Whistleblowers?

SEC whistleblower protections under Dodd-Frank require a written report of possible securities violations to the SEC before retaliation occurs, according to the agency’s whistleblower protections page. An internal report alone does not meet that requirement. The agency also points to Sarbanes-Oxley as another possible source of protection. Speak with us about which protections fit your job and your reports. We work through those questions with you and securities fraud whistleblower lawyers.

The SEC whistleblower protection program also reaches company efforts to obstruct communication with the agency. Its enforcement cases give that concern a concrete shape: an investigation form requiring company approval, a head trader removed from the trading desk, an employee’s accounting concerns followed by exclusion from work. These are decisions and documents inside a business, where an insider can explain what changed.

What Qualifies as Whistleblower Retaliation?

We assess what qualifies as whistleblower retaliation with you, starting with the report and the company’s response. Our work connects the underlying securities concern with the employment questions that securities fraud whistleblower lawyers address for you.

In its 2014 settled order concerning Paradigm Capital Management, the SEC alleged that the investment adviser retaliated against its head trader after learning he had reported possible securities violations. The agency described trades between a hedge fund Paradigm managed and a broker-dealer controlled by the same owner. According to the SEC, the fund sold securities to realize tax losses without effective disclosure of the conflict or effective consent to the transactions.

The SEC alleged that Paradigm removed the employee from his trading and supervisory responsibilities and denied him access to trading and account systems. According to the order, when he returned to the office, the firm placed him on a different floor from the trading desk and assigned him to identify the very wrongdoing he had reported. The agency described unchanged compensation alongside a changed job.

According to the SEC’s order, the assignment came with more than 1,900 pages of printed trading data. The employee explained that electronic reports could isolate the trades and asked for access to the trading system. The SEC alleged that Paradigm refused that access and insisted on the paper review. We call that an investigation with the tools locked away.

The Accounting Concern Came From the Parts Business

International Game Technology agreed to a $500,000 civil penalty to settle SEC allegations about its treatment of a division director who questioned the company’s accounting. The 2016 SEC order traced his concern to the cost of refurbishing used parts for casino-gaming equipment and whether that cost model distorted financial reporting.

The SEC’s order described a business that refurbished parts both internally and through outside vendors. Most refurbished parts went to the company’s Gaming Operations segment, which leased gaming equipment. The employee was examining whether outside refurbishment or work by company personnel was cheaper. He knew the business behind the cost, even though he did not oversee the accounting function.

According to the SEC’s order, the model assigned internally refurbished parts a standard cost equal to 35% of an equivalent new part’s cost. The employee believed that figure exceeded actual refurbishment costs and inflated the receiving segment’s cost of sales. His concern connected a parts-pricing decision to numbers appearing in financial statements.

That connection is familiar to people who work through a company’s accounting records and financial reports. Transaction records feed accounting entries, estimates and the close before becoming financial statements. Someone responsible for the underlying product or service may understand a cost assumption that looks ordinary once it reaches the report.

According to the SEC’s order, the director had received positive performance reviews before raising his concerns with the SEC, his managers and the internal hotline. The agency alleged that IGT then cut him out of his work and fired him.

The SEC’s order described IGT’s internal conclusion that its reconciliation process brought estimated repair costs back to actual costs and prevented the suspected distortion. The agency nevertheless pursued the company’s treatment of the employee. The accounting review answered the cost question. It could not answer for the company’s response to the report.

A Confidentiality Form Put Management in the Middle

The SEC’s action against KBR concerned the words employees were asked to sign during internal investigations. In its 2015 settlement announcement, the agency alleged that the technology and engineering company used confidentiality language that could obstruct reports of possible securities violations.

According to the SEC’s order, KBR investigators had witnesses sign a form at the start of an interview. The form said:

The SEC challenged the language itself, although it was unaware of an instance in which KBR had actually prevented an employee from communicating with SEC staff. KBR agreed to a $130,000 civil penalty over that language and amended the statement to remove the need for company authorization for such reports. The investigation was supposed to examine the complaint. Its form put the company in charge of where the complaint could go.

The broader gag-clause cases follow restrictions in company documents. The SEC’s protections page also identifies restrictive language in compliance manuals, codes of conduct and training materials. An interview statement, confidentiality agreement or severance agreement may be part of what you want to discuss with us alongside the underlying securities concern. We bring that document into the conversation with securities fraud whistleblower lawyers handling your matter.

Your Role, Your Reporting History and Your Location

Your job, earlier internal reports and the company’s response belong in our first conversation. An employee in accounting, a trader and a compliance professional may come to us with very different records and responsibilities. We connect that working knowledge to the securities concern while securities fraud whistleblower lawyers address the protection questions.

The same attention belongs to information coming from outside the United States. If your work, employer or reporting history crosses borders, we address those circumstances with you. Questions about employment protection and the timing of a report are reasons to speak with our team about your particular situation.

The SEC Award Is a Separate Part of the Conversation

Eligible SEC whistleblowers can share an award of 10% to 30% of collected monetary sanctions when the information leads to a successful SEC action with sanctions exceeding $1 million. The SEC’s program FAQ sets out that award framework. We address the potential award alongside the securities evidence and your protection questions.

The information a company tries to keep inside can matter beyond one enforcement action. The March 2019 working paper Do Corporate Whistleblower Laws Deter Accounting Fraud?, hosted by MIT Sloan, estimated a 7% reduction in fraud probability following the SEC whistleblower program’s introduction for firms not previously exposed to state False Claims Act incentives, relative to firms already exposed. Its finding concerns reporting incentives and estimated fraud risk, giving a wider reason to care about company documents that keep an accounting concern inside the business.

A whistleblower case under the federal False Claims Act can pay 15% to 30% of what the government recovers. If your information also concerns false claims for government money, we examine that conduct with you and bring in False Claims Act whistleblower lawyers.

When the Company Made Your Report About You

If your securities concern was followed by a changed assignment, lost responsibilities or a restrictive agreement, speak with our whistleblower experts about what happened inside the business. We connect your knowledge of the trades, costs or company records to the securities case, bring in securities fraud whistleblower lawyers, and stay beside you through the process.