LEGAL
At the end of August, the U.S. Securities and Exchange Commission (SEC) paid out more than $22 million from the agency’s whistleblower program to a former Monsanto executive who disclosed accounting improprieties to the commission.
The award is the second largest under the whistleblower program, which has now paid out a total of $107 million in awards to 33 whistleblowers since the program began in 2011. If nothing else, this latest award demonstrates that the SEC is as serious as ever about encouraging whistleblowers to come forward. And it appears that at least one other agency is following suit.
Namely, on August 30, the U.S. Commodity Futures Trading Commission (CFTC) proposed a number of amendments to its own whistleblower rules. The CFTC, which regulates commodities and futures trading, also had the Dodd-Frank Act to thank for the creation of its whistleblower program. Unlike the SEC, however, the CFTC explicitly stated that it lacked “the statutory authority to conclude that any entity that retaliates against a whistleblower” could be subject to enforcement action “as a separate and independent violation of the CEA.” Instead, the only remedy the CFTC had established for whistleblower retaliation was a private cause of action.
New enforcement authority
That was over five years ago. Now, the CFTC seeks to change all that with the proposed rule, because that 2011 interpretation “fails to adequately take into full consideration the statutory context of Commodity Exchange Act (CEA) section 23 and other CEA provisions.” Specifically, the CFTC claims that section 23(h)(1)(A), which expressly prohibits employers from discriminating against whistleblowers in any manner relating to employment, “establishes that retaliation is in fact a separate violation of the CEA.”
Citing to its general authority to prosecute any CEA violations, and to the premise that the statutory authority of the SEC “in this area is nearly identical to” the CFTC’s, the CFTC asserts that the proposed rule granting the CFTC authority to take enforcement action against covered employers for whistleblowers to be “beneficial to the public.”
Incentivizing whistleblowers
Although this is surely one of the most significant provisions in the proposed rule, it is only one of many. But, like the proposed expansion of the CFTC’s enforcement authority, the proposed changes are aimed toward building greater incentives for whistleblowers to report illegal activity.
For example, the proposed rule also contains a provision that would allow a potential whistleblower to receive an award without being the original source of the reported information. The proposed rule would also enhance the claims review process by making it more transparent and streamlined.
Additionally, the rule proposes to amend 17 C.F.R. § 165.11 to allow claimants eligible for an award in a covered judicial or administrative action to also “receive an award based on the monetary sanctions that are collected from a final judgment in a related action” (that is, a judicial or administrative action brought by one of five statutorily-named federal agencies and is based on the same original information submitted by the whistleblower).
While all of the provisions cannot be fully discussed in this limited space, one final provision that should be noted is the proposed expansion of 17 CFR § 165.19 to “prohibit the enforcement of confidentiality and pre-dispute arbitration clauses respecting actions by potential whistleblowers in any pre-employment, employment or post-employment agreements.”
Because of the widespread use of broad confidentiality agreements in employment scenarios, affected companies should take note of this proposed change when considering such agreements in the future.
To be sure, the final rule may differ from the proposed one, but the trend is all too clear: Federal regulators want information from whistleblowers, and they want it badly. Companies should be prepared for this seemingly accelerating trend and adjust their attitudes and policies accordingly.
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