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Big Businesses Creatively Retaliate Against Dodd-Frank Whistleblowers

Posted: January 6, 2015 at 4:20 pm   /   by   /   comments (0)

In only a few short years since it’s inception, big businesses on Wallstreet have figured out fool-proof ways to protect themselves from the Dodd-Frank Act. The following article from denotes just what businesses have concocted to retaliate against this SEC endorsed program.

Fearing the power and effectiveness of the Dodd-Frank whistleblower programs, big business has stepped up offensive tactics to prevent employees from exposing misconduct to federal regulators.

Attacks on whistleblowers have moved beyond just firing and blackballing them. Many companies now are undertaking aggressive new steps on two fronts: One tactic aims to prevent whistleblowers from reporting misconduct to the Securities and Exchange Commission or the Commodity Futures Trading Commission. The other seeks to demolish the protections against employment retaliation that Dodd-Frank offers to whistleblowers (along with substantial awards).

Intimidation is at the heart of these anti-whistleblower efforts.

The first tactic involves requiring employees to sign confidentiality agreements, separation agreements and other employment agreements that stymie the individual’s ability to disclose a company’s wrongdoing to regulators.

For example, aggressive employers have conditioned the payment of severance on requirements that the employee will not voluntarily provide and has not provided information about company business practices to regulators or enforcement authorities. Agreements also might require that the employee forfeit any whistleblower award he or she may receive. Although the inclusion of such terms in employment agreements may be unenforceable, they are intended for their more immediate effect: To gag whistleblowers.

The strategy to preemptively stop whistleblowing has become so common that Sean McKessy, chief of the Securities and Exchange Commission Whistleblower Office, has coined a new word for it: “pre-taliation.”

To its credit, the SEC has been aggressive in responding to corporate efforts to deter whistleblowing, both through agency enforcement and public comments. McKessy has made clear that the SEC is not shy about using its enforcement authority to protect the program from efforts to intimidate or retaliate against whistleblowers. Indeed, the SEC successfully brought its first anti-retaliation action in June, charging hedge-fund advisory firm, Paradigm Capital Management, with retaliating against a whistleblower. Paradigm and its owner, Candace King Weir, paid a total of $2.2 million to settle the retaliation and other securities law violations.

Regulated companies engaging in chilling tactics do so at their peril. Agreements that aim to interfere with whistleblowing arguably violate SEC rules prohibiting “. . . any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . .”

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