Two whistleblower stories caught my attention. Both are follow-ups to previous stories.
The Securities and Exchange Commission previously announced that it thought poorly of severance agreements that restricted the former employees from being whistleblowers. Last year, the SEC brought an action against KBR for restrictive employee agreements that stifled whistleblowing. That was in the context of confidentiality statements used as part of internal investigations. The SEC’s expressed distaste left few practitioners thinking that the distaste was limited to this kind of application.
BlueLinx didn’t get the law firm memos on this issue and continued to use severance agreements that stifled whistleblowers. When Rule 21F-17 was passed by the SEC, BlueLinx revised its severance agreements to allow terminated employees to be whistleblowers, but waive any right to monetary recovery in connection with it.
Further, by requiring its departing employees to forgo any monetary recovery in connection with providing information to the Commission, BlueLinx removed the critically important financial incentives that are intended to encourage persons to communicate directly with the Commission staff about possible securities law violations.
The SEC wants whistleblowers. That has given rise to the professional whistleblower. It took six years since the passage of Dodd-Frank, but in January 2016, the SEC announced the first-ever whistleblower award to an outsider. I think that was the first professional whistleblower. (Other than those whistleblowers who profited indirectly through books and speaking engagements.)
The Wall Street Journal reported that the rumor that Harry Markopolis’s firm was behind the State Street Bank and BNY Melon FX whistleblowers seems to be true. According to the story Mr. Markopolos became intrigued about the possibility that trust banks were overcharging clients in currency markets after reading a book by Yale University’s chief investment officer that pointed to unpredictable “foreign exchange translations.” Mr. Markopolos searched for bank employees to prove his case. He found a trio. The group organized Delaware partnerships to keep their identities out of public view. Mr. Markopolos served as a litigation consultant to the lawyers.
The resulting awards could exceed a combined $100 million. That will attract a lot of attention for those who think professional whistleblowing might be lucrative. It has taken years to get to the settlement and it’s not clear how much the whistleblower award will be or how much of a cut Markopolis will take from the award. It certainly seems like it could be millions or even tens of millions.
Sources:
- SEC Action for Stifling Whistleblowers in Confidentiality Agreements
- SEC Penalizes Company Over Restrictive Severance Agreements by Samuel Rubenfeld in the Wall Street Journal
- Company Paying Penalty for Violating Key Whistleblower Protection Rule
- SEC order against BlueLinx
- The Rise of the Professional Whistleblower
- Whistleblowers Are Poised to Collect $100 Million
- Hybrid group of professional whistleblowers and insiders on cusp of huge awards by Bruce Carton