Whistleblower Protection Rule 

What is the Whistleblower Protection Act? 

The Whistleblower Protection Act in the United States serves as a critical legal safeguard for federal employees who engage in the disclosing of information related to government misconduct. This legislation was designed to shield individuals from severe consequences when revealing activities such as legal violations, financial mismanagement, or threats to public safety. This protection rule has proven to be so effective that over 59 countries have adopted this same rule, and utilize it on a consistent basis.  

The fundamental principle of the whistleblower protection rule is to prohibit retaliation against employees who, in good faith, report wrongdoing. This ensures that those who come forward with vital information are protected from any form of reprisal or adverse employment actions.

The details of whistleblower protection may vary across jurisdictions and industries. It is recommended to familiarize oneself with the rules and regulations to ensure you understand how the rules are applied to your case or relevant contexts.

Whistleblowing in the Securities Industry

Whistleblowers have played an important role in the Securities and Exchange Commission’s (SEC) efforts to combat securities law violations. Their inside knowledge allows the SEC to identify potential fraud and violations earlier, which minimizes harm to investors and swiftly holds wrongdoers accountable. Congress has authorized the SEC to provide monetary awards to eligible whistleblowers whose information leads to enforcement actions with over $1,000,000 in sanctions.

In May 2023, the Securities and Exchange Commission revealed its record-breaking award, totaling almost $279 million, presented to a whistleblower whose information and support played a role in the successful enforcement of SEC and associated actions. This marked the highest-ever payout in the history of the SEC’s whistleblower program, surpassing the previous record of a $114 million award granted in October 2020.

Awards can range from 10% to 30% of the collected funds. The Office of the Whistleblower, established to administer the SEC’s program, emphasizes the importance of the decision to come forward and offers support to individuals with information. It is notable that payments to whistleblowers are made out of an investor protection fund, established by Congress, which is financed entirely through monetary sanctions paid to the SEC by securities law violators.

Violations  of the Whistleblower Protection Rule 

Violations of whistleblower protection rules typically involve any adverse actions taken against individuals who have reported misconduct in good faith. Some of the more common violations include:

Retaliation: Any form of retaliation against a whistleblower, such as termination, demotion, harassment, or other adverse employment actions, is a clear violation.

Intimidation or Threats: Attempts to intimidate or threaten a whistleblower as a means to discourage them from reporting misconduct are considered violations.

Interference with Rights: Actions that interfere with the rights granted to whistleblowers under protection laws, such as hindering their ability to make a complaint or participate in an investigation, constitute violations.

Blacklisting: Unfairly excluding or blacklisting a whistleblower from future employment opportunities as a result of their disclosures is a violation.

False Claims: Making false statements about a whistleblower’s performance or conduct in order to justify adverse employment actions is also considered a violation.

If you have a particular jurisdiction or industry in mind, providing more details would allow for a more precise response. It is recommended that you speak with an experienced attorney prior to making decisions based on the whistleblower protection rule.

Whistleblower Protection Rules in the News

It is interesting to note that internal whistleblowers make up over 90% of corporate retaliation cases. The majority of instances of corporate whistleblower retaliation arise from individuals reporting internally within their companies rather than utilizing external government channels.

According to a paper by Stephen M. Kohn, a whistleblower attorney and Professor at Northeastern University School of Law, reveals that during an 8-year period, whistleblowers chose internal reporting in more than 90% of cases filed under the Dodd-Frank Act and Sarbanes-Oxley Act (SOX), which are the principal whistleblower protection laws in the realm of Wall Street.

Kohn described how, “The data provides a strong justification for immediately amending Dodd-Frank and other whistleblower laws to protect internal whistleblowers.” It’s important to understand how the disproportionate level of retaliation against internal whistleblowers is significant and whistleblower protection is vital, especially in the securities industry. Ensuring that federal laws and administrative regulations are comprehensively upheld are crucial to whistleblowers’ rights to report confidentially and anonymously to the government.

In recent news, on January 16, 2024 J.P. Morgan was sanctioned for violating the whistleblower protection rule. According to a litigation release, J.P. Morgan reached a settlement with the SEC, after facing charges of obstructing clients from reporting potential securities law violations. The SEC announced that JPMS will pay an $18 million civil penalty to resolve these allegations, clarifying the firm’s practices from March 2020 through July 2023.

How does the Program Work?

The whistleblower protection programs may have variations depending on the specific laws and regulations in place, and also the situation that has occurred. However, the most common process that is followed is the general, ‘misconduct to retaliation’ method. The process plays out as follows:

Reporting Misconduct: Whistleblowers are encouraged to report misconduct internally through established channels within their organizations.

Legal Protections: Whistleblowers are legally protected from retaliation for making protected disclosures. This protection extends to actions such as termination, demotion, harassment, or any adverse employment action resulting from the disclosure.

Investigations: If a whistleblower faces retaliation, they have the right to file a complaint with the appropriate agency. The agency is then responsible for investigating the complaint to determine whether the adverse action was in retaliation for the protected disclosure.

Remedies for Retaliation: If the investigation finds that retaliation has occurred, remedies may be provided to the whistleblower. These remedies can include reinstatement, back pay, and other corrective actions to address the adverse employment action.

Appeals Process: Whistleblowers have the right to appeal adverse decisions. If the agency’s response is unsatisfactory, they may escalate the matter to external bodies or the courts for further review.

Do I need a Securities Fraud Attorney?

Although the hiring of an attorney in securities arbitration matters is not required, it can be extremely beneficial. Typically, securities fraud attorneys representing investors handle such cases on a contingency fee basis.

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm dedicated to helping investors in claims in all 50 states against their financial professional or brokerage firm. Since the firm launched in 2010, it has handled over 700 FINRA arbitration cases.

For a free consultation with our experienced securities fraud attorneys, please call the offices at 888-637-5510.     

With over 30 years of securities law experience, The White Law Group has the expertise to help investors defrauded in securities, investment and financial business transactions attempt to recover their investment losses.   For more information, please visit our website, www.whitesecuritieslaw.com.