The Employment Law Group® attorney Jason Zuckerman was quoted in an Ammerican Bar Association article titled SEC is Giving Whistle-blower Protection One Last Lick:
“After the Bernard Madoff scandal broke the SEC had a lot of egg on its face,” says Jason Zuckerman, principal of [T]he Employment Law Group, a Washington, D.C.-based firm that represents whistle-blowers.
“It’s clear that they need to do more to be responsive to the allegations they get and to encourage employees to report corporate fraud,” says Zuckerman, who co-chairs the Whistleblower Subcommittee of the American Bar Association’s Labor and Employment Section’s Employee Rights and Responsibilities Committee.
The Dodd-Frank Act (DFA) was passed in July of 2010 to deter securities violations by corporations. The law includes whistleblower reward and protection provisions that require the SEC to provide a monetary reward up to 30% for whistleblowers who report violations to the SEC. Corporations often characterize whistleblowers as troublemakers and have consistently lobbied the SEC to weaken the DFA’s whistleblower provisions by adopting regulations requiring all whistleblowers to report violations internally to the corporation, rather than to the SEC. Zuckerman responded as follows:
…[W]histle-blower advocates like [T]he Employment Law Group’s Zuckerman maintain that the backlash against the SEC’s proposed rules is unfounded.
“I don’t think individuals are ever eager to blow the whistle,” says Zuckerman. He co-authored a comment letter to the SEC on Dec. 17 as a member of the whistle-blower advocacy group, Voices for Corporate Responsibility, along with Change to Win, the National Employment Lawyers Association and the Government Accountability Project. “What they want to do is keep their jobs, especially when we have such high unemployment.”
He says whistle-blower programs with robust monetary rewards have proven successful, citing the False Claims Act, whose provisions were strengthened in 1986. The act authorizes whistle-blowers to prosecute contractors for fraud on behalf of the U.S. government. Those claims have resulted in the recovery of more than $24 billion, Zuckerman says.
“There is tremendous empirical evidence that it works,” he says, citing large settlements against companies such as Pfizer and Eli Lilly. “If companies are so concerned about employees blowing the whistle directly to the SEC, then they should enhance their compliance programs to address employee concerns more effectively.”
The groups co-authoring the letter with Zuckerman also worry that the proposed SEC rules don’t address coordination of investigations by overlapping federal agencies, a need they say is “particularly critical where the SEC has limited resources and must respond to claims originating from a universe of approximately 6,700 publicly traded companies and related advisors and entities.”
For more information about the SEC’s Whistleblower Program, click here.
A federal jury awarded Sarbanes-Oxley whistleblowers Shawn and Lena Van Asdale $2.2 million in a lawsuit they filed against their former employer International Game Technology (“IGT”). IGT is a publicly-traded company specializing in computerized gaming and slot machines. IGT’s management hired the Van Asdales in 2001 as in-house intellectual property attorneys, quickly promoting Shawn to the Director of Strategic Development and Lena to the Director of IP Procurement.
In 2003, Shawn reported to his supervisors that he believed Anchor Gaming, which merged with IGT in 2001, misled IGT regarding the validity of the patent for one of Anchor’s popular slot machine designs. If the patent is invalid, then the benefits of IGT’s merger with Anchor Gaming was likely overvalued and IGT’s shareholders may have been defrauded.
Following the merger, many from Anchor’s management accepted positions in IGT’s management, including Anchor’s General Counsel, David Johnson, who became IGT’s General Counsel. Johnson decided to fire Shawn seventeen days after Shawn received a positive performance review and three days after Shawn reported the potential shareholder fraud to Johnson in a meeting. Johnson then fired Lena after learning that she had requested access to allegedly sensitive information that Johnson believed she planned to use to assist her husband.
The Van Asdales brought their lawsuit in federal court alleging IGT violated the whistleblower protection provisions of the Sarbanes-Oxley Act (SOX), which prohibits publicly traded companies from retaliating against employees who report what they reasonably believe to be shareholder fraud. Whistleblowers do not have to prove any actual fraud took place – only that they reported potential fraud to their employer and that their employer retaliated against them. Initially, IGT prevailed against the Van Asdales when a federal judge granted their motion for summary judgment. However, Judge Bybee of the United States Court of Appeals for the Ninth Circuit reversed the federal court’s decision and allowed the lawsuit to proceed to trial where a federal jury awarded the Van Asdales $2.2 million in compensation for being illegally fired by IGT.
Does Attorney-Client Privilege Strip Company Lawyers of Whistleblower Protections?
According to Judge Bybee, attorney-client privilege alone does not warrant dismissal of a lawyer’s claim of whistleblower retaliation by an employer, stating:
There is no reason why the district court cannot limit any testimony to [allegations of shareholder fraud], while avoiding testimony regarding any litigation-related discussions that also took place. To the extent this suit might nonetheless implicate confidentially-related concerns, we agree… that the appropriate remedy is for the district court to use the many equitable measures at its disposal to minimize the possibility of harmful disclosures, not to dismiss the suit altogether. (citations omitted).
Furthermore, the court noted that the Sarbanes-Oxley Act expressly authorizes any “person” alleging unlawful retaliation to file a complaint with the Secretary of Labor and, thereafter, to bring suit in an appropriate district court.
The Sham Affidavit Rule Narrowly Applied
Under the sham affidavit rule, a party cannot create an issue of fact (and thus survive the opposition’s motion for summary judgment) by merely submitting an affidavit that contradicts the party’s prior deposition testimony. The rule is intended to strike at stalling tactics used by lawyers to keep their lawsuit alive through pretrial motions. The court briefly identified the facts that triggered the application of the sham affidavit rule in this case:
Johnson executed a sworn declaration stating that neither Shawn nor Lena made any suggestion to him regarding a potential fraud on the shareholders; however, this declaration directly contradicted Shawn’s affidavit. Typically, of course, such a stark factual dispute must be decided by a fact finder and cannot be resolved on summary judgment. In this case, however, the district court disregarded the portion of Shawn’s [affidavit] in which he said that he raised concerns of shareholder fraud with Johnson, because the district court viewed this portion of the [affidavit] as contradicting Shawn’s [prior] deposition testimony.
Judge Bybee explained why the sham affidavit rule must be applied narrowly and with caution:
… [I]t must be recognized that the sham affidavit rule is in tension with the principle that a court’s role in deciding a summary judgment motion is not to make credibility determinations or weigh conflicting evidence. Aggressive invocation of the rule  threatens to ensnare parties who may have simply been confused during their deposition testimony and may encourage gamesmanship by opposing attorneys. We have thus recognized that the sham affidavit rule should be applied with caution.
First, we have made clear that the rule does not automatically dispose of every case in which a contradictory affidavit is introduced to explain portions of earlier deposition testimony, rather, the district court must make a factual determination that the contradiction was actually a ‘sham.’ Second, our cases have emphasized that the inconsistency between a party’s deposition testimony and subsequent affidavit must be clear and unambiguous to justify striking the affidavit. Thus, the nonmoving party is not precluded from elaborating upon, explaining or clarifying prior testimony elicited by opposing counsel on deposition [and] minor inconsistencies that result from an honest discrepancy, a mistake, or newly discovered evidence afford no basis for excluding an opposition affidavit. (Citations omitted).
Since nothing in Shawn’s affidavit flatly contradicted his earlier deposition testimony, and his affidavit was a legitimate attempt to explain or clarify prior deposition testimony, the district court incorrectly applied the sham affidavit rule when it struck portions of Shawn’s affidavit.
The Whistleblower Reasonable Belief Standard
To trigger the whistleblower protections of the Sarbanes-Oxley Act, the employee must have a subjective belief that the conduct being reported violated a securities law, and this belief must be objectively reasonable. Judge Bybee applied this standard to the Van Asdales, ruling:
It is not critical to the Van Asdales claim that they prove that Anchor officials actually engaged in fraud in connection with the merger; rather, the Van Asdales only need show that they reasonably believed that there might have been fraud and were fired for even suggesting further inquiry. To encourage disclosure, Congress chose statutory language which ensures that an employee’s reasonable but mistaken belief that an employer engaged in conduct that constitutes a violation… is protected. We think that the Van Asdales have met this minimal threshold requirement. (Citations omitted).
Requiring an employee to essentially prove the existence of fraud before suggesting the need for an investigation would hardly be consistent with Congress’s goal of encouraging disclosure.
For more information about the whistleblower protections of the Sarbanes-Oxley Act, click here.
Webinar: Using New Developments In Whistleblower Laws To Your Client’s Advantage
March 10, 2011
11:00 a.m. Pacific/2:00p.m. ET/1:00p.m. CT/ 12:00 MT
Congress recently enacted several new robust whistleblower reward and protection laws, and strengthened existing whistleblower laws. This webinar will address new developments in whistleblower law, including recent decisions strengthening the rights of federal employee whistleblowers. Topics include:
- The whistleblower reward provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act and the proposed regulations implementing those provisions.
- Dodd-Frank Act amendments strengthening the anti-retaliation provisions of the Sarbanes-Oxley Act and the False Claims Act.
- Three new whistleblower retaliation causes of action in the Dodd-Frank Act.
- Recent case developments under Section 806 of the Sarbanes-Oxley Act, including the Fourth Circuit’s decision in Stone v. Instrumentation Lab. Co., 591 F.3d 239 (4th Cir. 2009) clarifying the right to de novo review in federal court.
- New legislation protecting whistleblowing on food safety.
- Recent developments under the False Claims Act, including legislation closing loopholes.
- Recent case developments in federal employee whistleblower protection, including the MPSB’s recent decision in Conyers v. Dep’t Defense, 2010 MSPB 2047, December 22, 2010).
- An overview of recently enacted federal whistleblower protection laws protecting workers in the transportation and health care industries.
NELA’s expert faculty will address these new whistleblower protection laws and offer practical tips for representing whistleblowers.
Tom Devine is Legal Director of the Government Accountability Project (GAP) where he has worked since January 1979. GAP is a nonprofit, nonpartisan public interest organization that champions the rights of whistleblowers—those employees who exercise freedom of speech to challenge abuses of power that betray the public trust. During his 29 years at GAP he has represented or informally helped over 4,000 whistleblowers to make a difference, such as stopping nuclear power plants that were accidents waiting to happen, deregulation of meat inspection and the next generation of Star Wars. He has been a leader in the campaigns to pass or defend nearly all major national or international whistleblower laws, from the Whistleblower Protection Act of 1989 for federal employees, and breakthrough laws creating the right to jury trials for corporate whistleblowers for corporate employees, to new U.N. and African Development Bank policies legalizing public freedom of expression for their own whistleblowers, the first time any Intergovernmental Organizations have adopted this cornerstone for global accountability. He has been an “Ambassador of Whistleblowing” for the State Department in over a dozen nations on speaking tours to advocate whistleblower rights as a cornerstone transparency reform for globalization. Mr. Devine has authored or co-authored numerous books, including Courage Without Martyrdom: The Whistleblower’s Survival Guide, law review articles, and newspaper op-ed articles.
Reuben A. Guttman
Reuben A. Guttman is a director at Grant & Eisenhofer where he heads the Federal False Claims Act and whistleblower practice. Mr. Guttman earned his law degree at Emory University Law School in 1985 and his Bachelor’s Degree from the University of Rochester in 1981. He is a Senior Fellow and Adjunct Professor at the Emory University School of Law Center for Advocacy and Dispute Resolution. As part of a U.S. State Department program in conjunction with the Center for Advocacy and Dispute Resolution, he has been one of five visiting professors at Universidad Panamericana in Mexico City training Mexican judges and practitioners on oral advocacy and trial practice. Mr. Guttman is also faculty member of the National Institute of Trial Advocacy. He has been a guest lecturer at a number of universities including Jao Tong University in Shanghai, as well as Peking University and Renmin University in Beijing. He co-founded Voices for Corporate Responsibility, www.voicesforcorporateresponsibility.com, and is the founder of www.whistleblowerlaws.com and www.thecorporateinsider.com.
Stephen M. Kohn
Stephen M. Kohn is a founding member of the Washington, D.C. law firm of Kohn, Kohn & Colapinto, LLP and currently serves as the Executive Director of the National Whistleblower Center. In 1985 he wrote the first-ever legal treatise on whistleblower law, Protecting Environmental and Nuclear Whistleblowers: A Litigation Manual, and since then has written seven other books and numerous law journal articles on whistleblower law and civil liberties. Mr. Kohn started representing whistleblowers in 1984 as the Clinical Director and Director of Corporate Litigation for the Government Accountability Project. His clients have blown the whistle on billion dollar tax frauds, illegal “no-bid” contracts given to insiders for the “Reconstruction of Iraq,” and high level corporate and government misconduct. Mr. Kohn consulted with staff from the Senate Banking Committee during the drafting phase of the Dodd-Frank Act, and contributed suggestions to Section 21F of the Securities Exc hange Act that were ultimately incorporated into the law. He graduated magna cum laude from Boston University, earned a Master’s Degree in political science from Brown University and his law degree from Northeastern University.
Jason Mark Zuckerman
Jason Zuckerman, a Principal at The Employment Law Group, P.C., has been recognized twice by Washingtonian magazine as a “Top Whistleblower Lawyer” and has substantial experience litigating whistleblower retaliation, qui tam, and wrongful discharge cases, including a qui tam action under the False Claims Act that settled for $57 million. Mr. Zuckerman serves as Co-Chair of the Whistleblower Subcommittee of the ABA Labor and Employment Section’s Employee Rights and Responsibilities Committee, Co-Chair of the Sarbanes-Oxley Subcommittee of the Fair Labor Standards Legislation Committee of the American Bar Association’s Labor and Employment Law Section, Co-Chair of the Whistleblower Committee of the District of Columbia Bar’s Labor and Employment Section, and has served as Co-Chair of the National Employment Lawyers Association’s Whistleblower Committee. In addition, Mr. Zuckerman serves on the Government Accountability Project’s Advisory Committee and has worked with public interest groups to enact new whistleblower protection laws and strengthen existing laws. Mr. Zuckerman co-authored a chapter on litigating whistleblower cases for Whistleblowing: The Law of Retaliatory Discharge (BNA Books), drafted a chapter on the D.C. Whistleblower Protection Act for the D.C. Practice Manual and is co-editor of the Whistleblower Law Blog. He graduated magna cum laude from Georgetown University and received his law degree from the University of Virginia.
How To Attend
Register for the webinar at this website. Join the live program from your office, home, or hotel room using a computer for the web portion and telephone for the audio portion. You may ask questions, participate in surveys, and post comments from your computer during the program. You may also invite colleagues to watch the program from a shared computer or projection screen and speakerphone. Please note that credit (if available) is only provided to registered attendees participating at their own computer and phone. Simple instructions with a link to the program will be sent when you register.
If applicable, you may obtain credit in multiple jurisdictions simultaneously for this program (see pending/approved list below). Registrants in jurisdictions not listed below will receive a Certificate of Attendance/Completion that may or may not meet credit requirements in other jurisdictions. Where applicable, credit will be only awarded to a paid registrant attending the live program at their own computer and phone.
This program has been approved for or is pending credit for:
CA, CO, IL, VA
The U.S. Department of Labor (DOL) should be commended for requesting an additional $6 million in funding for its whistleblower programs, which would allow them to hire an additional 45 full-time employees. The DOL enforces 21 federal statutes enacted by Congress to protect employees who report illegal or unsafe activity from being retaliated against by their employer. Deficiencies in the program were recently highlighted in a Government Accountability Office report and the DOL’s own internal investigations. Attorneys at the The Employment Law Group® and other law firms were invited by the DOL to provide feedback on how the whistleblower programs could be improved. The recommendations included, among other ones, the following:
- OSHA should update the training of OSHA investigators so that their interpretation of the law is consistent agency-wide.
- OSHA should further develop its relationships with other law enforcement agencies so that OSHA can leverage their expertise.
- OSHA should issue a plain English procedural guide for complainants who are not represented by counsel.
The DOL’s request for additional funding underscores the seriousness with which the DOL intends to combat whistleblower retaliation. To learn more about the federal statutes that prohibit whistleblower retaliation, click here.
The Employment Law Group
® attorney Jason Zuckerman is quoted in an article titled Whistle-blower Debate Heats Up
on CFO.com regarding the Securities and Exchange Commission’s proposed regulations for implementing the whistleblower provisions of the Dodd-Frank Act
. The Act requires the SEC to provide a monetary reward to whistle-blowers who voluntarily report original information leading to the recovery of more than $1 million from the accused companies. Zuckerman compares the new whistleblower program to the highly successful qui tam
provisions of the False Claims Act where a financial incentive helped the government recover over 28 billion dollars:
“The evidence is clear that providing a financial incentive for people to report corporate fraud has worked very well,” says Jason Zuckerman, a principal of The Employment Law Group®, which represents whistle-blowers.
Regarding a projected increase in tips, Zuckerman states:
. . . if you were to talk to people who lost their life savings to corporate fraud, “you would find it hard to argue that, if the SEC has to take some time to separate the wheat from the chaff, then this program is not worthwhile.”
Those opposed to the rules also see an issue with the Dodd-Frank Act allowing whistle-blowers to report allegations of fraud directly to the SEC.
To be eligible for protection under the whistleblower provisions in the Sarbanes-Oxley Act
, [whistleblowers previously] have had to first inform their employers through internal compliance programs.
If a CEO is behind an illegal scheme to stimulate short-term profits, the company’s compliance program is unlikely to be effective, Zuckerman points out, and an internal “investigation” could include tampering with evidence or witnesses.
Most whistleblowers do not want to change careers and would readily report fraud through their employer’s compliance program if they believed their employer would not retaliate against them. The whistleblower
, not the employer, is in the best position to decide whether to report illegal activity directly to the SEC or through the employer’s compliance program. Click here
to learn more about the Dodd-frank Act.