Skip to content

Menu

ChannelsPublishersSubscribe
LexBlog, Inc. logo
LexBlog, Inc. logo
ProductsSub-MenuBlogsPortalsTwentySyndicationMicrositesResource Center
Join
Search
Close
Join the Movement. Blog 4 Good

Whistleblower Attorney Challenges SEC Final Rule Changing Its Whistleblower Program

By Lloyd B. Chinn, Pinchos Goldberg & Scott Tan on February 17, 2021
EmailTweetLikeLinkedIn

On January 13, 2021, a New York whistleblower attorney filed a lawsuit in the U.S. District Court for the District of Columbia challenging a recent final rule adopted by the Securities and Exchange Commission (the “Commission or “SEC”) which made several changes to the SEC’s whistleblower program.

The SEC Final Rule

The final rule was adopted on September 23, 2020 after an extended notice-and-comment period following issuance of the proposed rule on June 28, 2018 (our post on the final rule is here).  Among other changes, the proposed rule had originally included amendments allowing the SEC to conduct a separate review process to reduce “exceedingly large awards” of at least $30 million.  The final rule scrapped this process and instead asserted that the Commission already possessed discretion to reduce large awards with high dollar amounts under the existing statutory award factors.

In addition to modifying Rule 21F-6, the final rule also amended the definition of “related action” to allow the Commission to deny an award based on an action by another regulatory authority if it determines that a different whistleblower award program (such as the CFTC’s whistleblower program) has a “more direct or relevant connection to the action.”

The Complaint

In his complaint, the whistleblower attorney alleged several violations of the Administrative Procedure Act (“APA”).  Plaintiff emphasized that in the proposed rule, the Commission “repeatedly and expressly acknowledged” that it lacked authority under its existing regulations to consider the dollar amount of a potential award, which is why it was forced to propose a “separate review process” in the first place.  The complaint also alleged that the Commission implicitly acknowledged its lack of authority by stating that the separate review process outlined in its proposed rule would only apply to future whistleblower applications.

Plaintiff also asserted that the final rule’s amendment to the definition of “related action” allowing the SEC to deny awards better suited to a different whistleblower program violated the APA.  Plaintiff alleged that the statutes enacting the whistleblower program defined a “related action” as “any judicial or administrative action brought by [the specified government entities],” and did not provide the Commission with discretion to impose additional requirements.  The complaint cited dissenting Commissioners who warned that allowing the SEC to determine, at its discretion, the most relevant whistleblower program would decrease certainty and efficiency for whistleblowers and frustrate the aim of the program—to maximize deterrence.

Finally, Plaintiff noted that whistleblowers often fear being retaliated against or blacklisted due to their actions, and thus prefer to report anonymously.  By diverting whistleblowers to other programs, many of which do not offer anonymous reporting, some individuals will choose not to report at all.  

Takeaways

This lawsuit presents a novel challenge to the Commission’s final rule, which drew criticism by numerous stakeholders in the years prior to its adoption.  It remains to be seen whether plaintiff’s claims under the Administrative Procedure Act will bear fruit.  The true impact, if any, of the final rule on the whistleblower program is unlikely to be revealed until the SEC releases its annual report later this year.

Photo of Lloyd B. Chinn Lloyd B. Chinn

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative…

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative agencies in New York and across the country. Lloyd’s practice ranges from litigating compensation disputes to defending whistleblower, discrimination and sexual harassment claims. Although he represents employers in a wide range of industries, including law, insurance, health care, consulting, media, education and technology, he focuses a substantial portion of his practice on the financial services sector. He has tried to final verdict or arbitration award substantial disputes in this area.

Due to Lloyd’s litigation experience, clients regularly turn to him for advice regarding the full range of employment matters, including terminations, whistleblower policy and procedure, reductions in force, employment agreements, and employment policies. For example, in the wake of the financial crisis, he has counseled a number of firms through reductions in force and related bonus and deferred compensation disputes. Lloyd has also been retained to conduct internal investigations of allegations of workplace misconduct, including claims leveled against senior executives.

Read more about Lloyd B. ChinnEmail
Show more Show less
Photo of Pinchos Goldberg Pinchos Goldberg

Pinny Goldberg is an associate in the Labor & Employment Law Department. Pinny represents employers in a broad array of matters before federal and state courts, FINRA and other arbitration panels, and administrative agencies, including the EEOC and its state equivalents, and in…

Pinny Goldberg is an associate in the Labor & Employment Law Department. Pinny represents employers in a broad array of matters before federal and state courts, FINRA and other arbitration panels, and administrative agencies, including the EEOC and its state equivalents, and in pre-litigation negotiations. Matters he works on include discrimination and harassment, wage and hour, wrongful discharge, whistleblowing and retaliation, covenants not to compete, breaches of fiduciary duty, unjust enrichment, and tort and contract claims.

In addition to handling litigation and dispute resolution, Pinny regularly advises clients on a wide variety of employment issues, including drafting, reviewing and revising handbooks and workplace policies. He also addresses questions and concerns related to hiring, wage and hour issues, employee leave, performance problems, terminations of employment, and separation agreements and releases.

Read more about Pinchos GoldbergEmail
Show more Show less
Photo of Scott Tan Scott Tan

Scott Tan is a law clerk in the Labor & Employment Law Department and a member of the Employment Litigation & Arbitration Group.

Scott earned his J.D. from the UCLA School of Law, where he served as a problem developer and member of…

Scott Tan is a law clerk in the Labor & Employment Law Department and a member of the Employment Litigation & Arbitration Group.

Scott earned his J.D. from the UCLA School of Law, where he served as a problem developer and member of the Moot Court Honors Board. He also worked as a research assistant for Dean Jennifer Mnookin and Professor Hiroshi Motomura.

Read more about Scott TanEmail
Show more Show less
  • Posted in:
    Employment & Labor
  • Blog:
    Proskauer Whistleblower Defense
  • Organization:
    Proskauer Rose LLP
  • Article: View Original Source

Stay Connected

Facebook LinkedIn Twitter RSS
Real Lawyers

Company

  • About LexBlog
  • Careers
  • Press
  • Contact LexBlog
  • Privacy Policy
  • Editorial Policy
  • Disclaimer
  • Terms of Service
  • RSS Terms of Service

Products

  • Products
  • Blogs
  • Portals
  • Twenty
  • Syndication
  • Microsites

Support

  • 1-800-913-0988
  • Submit a Request
  • Support Center
  • System Status
  • Resource Center

New to the Network

  • Red Clover Advisors Blog
  • Plane-ly Spoken
  • FCC Law Blog
  • California Employment Law
  • Privacy Compliance & Data Security
Copyright © 2021, LexBlog, Inc. All Rights Reserved.
Powered By LexBlog