Pop quiz: what are the three criteria the SEC stated they would hold a chief compliance officer accountable for? Well, I admit that was a trick question, because even if you got them right, the SEC is ruffling feathers by issuing enforcement actions that go beyond these criteria. OSHA thinks companies should do more to prevent whistleblower retaliation and there may be new whistleblower protection legislation soon; a whistleblower gets to pocket $199 million after the Trinity Industries ruling and the former GC of Bio-Rad is suing them. Read all about it in this month’s digest.
SEC Actions Stir Concerns Over Compliance Officer Liability
2 recent SEC enforcement actions have raised concerns that the agency will penalize compliance officers who create rigorous programs, leading to potentially perverse incentives to avoid responsibility for those programs. You’ve heard of these cases: the SEC charged the CCO at Blackrock Advisors with failing to implement certain compliance policies and procedures. He agreed to pay a $60K penalty; the company will pay $12M. The SEC also charged the CCO of SFX Financial Advisory Management Enterprises with failing to implement compliance policies and procedures it says would have detected an alleged fraud by an executive. The company was fined $150K and the compliance officer agreed to pay a $25K penalty.
This has some people in an uproar, one of whom actually works for the SEC. By holding compliance officers liable for the implementation of programs, and not just their creation, the SEC is sending a “troubling message” that CCOs “should not take ownership of their firm’s compliance policies and procedures, lest they be held accountable for conduct that…is the responsibility of the adviser itself,” said SEC Commissioner Daniel Gallagher. The comments came in a statement Mr. Gallagher issued about why he disagreed with the SEC actions in these 2 cases. In both cases, the enforcement actions go beyond the parameters of what the SEC had said it would hold compliance officers accountable for, said Scott Killingsworth, a compliance attorney at law firm Bryan Cave. The SEC previously had stated three criteria for chief compliance officers being held responsible—their being actively involved in wrongdoing, trying to cover up any wrongdoing or ignoring red flags that wrongdoing was occurring–but the recent rulings held compliance officers liable for the poor implementation of compliance programs and controls. “It looks like a policy change…The issue here is when is it fair to hold me liable for your misconduct?” said Killingsworth.
OSHA Committee: Whistleblower Retaliation Still Too Common
An OSHA federal advisory group is recommending that companies do more to protect company whistleblowers from retaliation. The recommendations, reviewed by The Wall Street Journal, say that despite increased enforcement from regulators, “Retaliation against employees who report issues is all too common.” The 12-page recommendations describe how to create a “speak up” culture that allows employees to voice concerns, while protecting companies from retaliation claims. The advisory group was made up of union representatives, corporate attorneys and government representatives, who unanimously approved the recommendations. OSHA expects to publish a version of the recommendations in the next 6 months.
US regulators have been expanding their outreach to whistleblowers and ramping up enforcement against companies that punish employees who speak out. OSHA is tasked with fining companies who are found to have punished employees who raise workplace safety issues or shine a light on accounting fraud. The guidelines urge companies to better train managers on the many forms that retaliation can take, including “less overt behaviors such as peer pressure, ostracizing, mocking, and exclusion from meetings.” Does your ethics training cover retaliation in depth? Our Ethical Leadership: Managing with Integrity course is designed for leaders at every level, guiding them to demonstrate integrity in their own actions, talk openly with employees about integrity and show their commitment to your Code of Conduct. Through the course, leaders gain insight into how to properly handle employee integrity concerns, be better communicators and recognize potential retaliation.
Senators Introduce Legislation to Protect Whistleblowers in Criminal Antitrust Cases
Senate Judiciary Committee Chairman Chuck Grassley and Ranking Member Patrick Leahy introduced legislation to extend whistleblower protections for employees who provide information to the DOJ related to criminal antitrust violations. The Criminal Antitrust Anti-Retaliation Act seeks to protect whistleblowers in criminal antitrust cases by prohibiting employers from retaliating against an employee who provides information to the DOJ regarding conduct that violates the criminal antitrust laws. The Senate unanimously passed a similar version of the legislation last Congress. The legislation is based on recommendations from a GAO report released in July 2011.
The bill allows an employee who believes he or she is the victim of retaliation to file a complaint with the Secretary of Labor, and provides for that employee to be reinstated to their former status if the Secretary finds in their favor. Grassley and Leahy authored similar whistleblower statutes as part of SOX. Grassley said, “We’ve seen how whistleblower protections can be a real incentive to helping root out waste, fraud and abuse. This can be another tool in the toolbox to stop individuals who are looking at criminal antitrust activities.”
“Whistleblowers are often instrumental in alerting the public, Congress, and law enforcement agencies to wrongdoing in a variety of areas. These individuals take risks in stepping forward and deserve to be protected from retaliation… The Criminal Antitrust Anti-Retaliation Act does exactly that by offering meaningful protection to those who blow the whistle on illegal behavior such as price fixing. I hope Congress will finally enact this legislation this year,” said Leahy.
Federal Judge Orders Trinity Industries to Pay $663.4M in Whistleblower Case
A federal judge in Marshall has ordered Trinity Industries to pay $683M in a whistleblower false claims case. The judgment caps a 2012 suit brought under the federal False Claims Act by whistleblower Joshua Harman, a former competitor of Trinity’s who alleged that Trinity committed fraud when it continued to sell its popular guardrail system, known as ET-Plus, after making small changes to its design without first telling the Federal Highway Administration. In October, a 7-member federal jury in Marshall agreed. It pegged the damages to the highway agency to be $175M. The statute automatically triples those damages when a whistleblower proves his or her case. The judge also fined Trinity $138.4M. In addition, he ordered the company to pay nearly $20M to cover Harman’s legal fees and costs. Harman will get to keep 30% of the total, or $199M.
The company faces at least one lawsuit brought by shareholders claiming they should have been told about the design changes. The modified guardrails have been linked to crashes that have killed at least nine people, though no court has determined that the company was at fault in the fatalities. The judge could have set the total amount to be paid at close to $800M and said the $138.4M fine was “at the midpoint” of what the statute called for.
Former Bio-Rad GC Files Whistleblower Suit Over Firing
This is all kinds of ugly. The former GC of Bio-Rad Technologies has sued the company, alleging he was “abruptly fired” in 2013 in retaliation for reporting evidence of corrupt dealings in China. Sanford Wadler—who served as Bio-Rad’s GC for more than two decades— claims he alerted Bio-Rad’s top leadership and audit committee to potential evidence of FCPA violations in China but that senior executives blocked his efforts to investigate. The suit calls into question 2 external investigations conducted by Steptoe & Johnson LLP, claiming the firm didn’t do a rigorous enough job and wrongly concluded there was no evidence of corruption. Of course you may remember the company settled with the DOJ for $55M for… FCPA violations.
The complaint names Bio-Rad and its CEO and several board members as defendants. Wadler’s suit discusses the inner workings at Bio-Rad as the company negotiated with the DOJ and SEC to resolve an investigation into alleged FCPA violations in Russia, Thailand and Vietnam. The company settled with the federal agencies in 2013, paying $55.1 million and admitting that a subsidiary had paid kickbacks to win foreign sales. According to Wadler’s suit, he was fired on June 7, 2013, a few weeks before the company was scheduled to report to the DOJ and SEC on the status of its internal investigations. For the 2 years prior he had raised alarms internally about Bio-Rad’s business dealings in China and pushed for a more aggressive investigation. Wadler’s lawyers claim that his concerns were met with “repeated stonewalling” from Bio-Rad’s senior executives. “Wadler became suspicious that corruption issues in China were known to senior management, and that management was intentionally blocking his efforts to uncover evidence of bribery and related misconduct,” the suit states.