May 10, 2021

Volume XI, Number 130

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May 10, 2021

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Ninth Circuit Limits Protections for FCPA Whistleblowers

The Ninth Circuit held that the anti-retaliation provisions of the Sarbanes-Oxley Act do not protect whistleblowers who make internal complaints about potential violations of the Foreign Corrupt Practices Act (FCPA). The court’s ruling limits the remedies available to employees who claim to have suffered adverse employment actions in retaliation for raising FCPA concerns.

SOX’s Whistleblower Anti-Retaliation Provision

Section 806 of the Sarbanes-Oxley Act (SOX) makes it unlawful for a public company to take adverse employment action against an employee who, among other things, raises internal concerns about conduct that the employee reasonably believes constitutes a violation of “any rule or regulation of the Securities and Exchange Commission” or “any provision of Federal law relating to fraud against shareholders.”   A whistleblowing employee who alleges retaliation in violation of Section 806 may bring a civil claim against their employer in federal court, subject to certain procedural requirements.  At issue in Wadler was whether the phrase “any rule or regulation of the [SEC]” encompasses the statutory provisions of the FCPA.

The Wadler Decision

In 2015, Sanford Wadler, former general counsel of a laboratory, sued the laboratory for wrongful termination.  Among other things, he claimed that the laboratory terminated him in violation of SOX § 806 for making internal reports about potential FCPA violations in China.   In 2017, a federal jury found for Wadler, awarding him $11 million in damages.

On appeal, the laboratory took issue with the trial court’s jury instructions on Wadler’s SOX claim, arguing that the internal disclosure of potential FCPA violations lies outside the protection of § 806, because the statutory provisions of the FCPA do not constitute SEC “rules” or “regulations.”   The Ninth Circuit agreed.  The court acknowledged that the words “rule” and “regulation” could encompass a statute when read in isolation.  Reading the words in the context of SOX § 806, however, it held that those words plainly refer only to the SEC’s administrative rules or regulations, which do not encompass the FCPA, a congressionally enacted statute.  Accordingly, while the court upheld the trial court’s instruction on Wadler’s state law claim that the laboratory’s retaliation violated California public policy, it vacated and remanded the SOX claim, with instructions to determine whether a new trial was warranted.  In so doing, the court noted that a properly instructed jury mighthave found that Wadler was terminated in retaliation for complaining about the possible falsification of books and records, which is prohibited by an SEC “rule or regulation” (namely Exchange Act Rule 13b2-1).

Conclusion

This appears to be a case of first impression, and it remains to be seen whether other circuits will follow the Ninth Circuit’s lead or whether the issue will reach the U.S. Supreme Court. Both the petition for panel rehearing and petition for rehearing en banc were denied, and there has been no petition for Supreme Court review. Thus, for the time being, it appears that internal whistleblowers in the Ninth Circuit who claim to have suffered retaliation for reporting possible FCPA violations will be limited to whatever remedies may be available to them under state law.

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© Copyright 2021 Squire Patton Boggs (US) LLPNational Law Review, Volume IX, Number 115
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About this Author

Coates Lear Government Investigations Attorney Squire Patton Boggs Denver, CO & Washington DC
Partner

Coates Lear specializes in assisting companies, boards of directors, board committees and individuals in internal investigations, government inquiries and enforcement proceedings. Drawing on his extensive government experience, Coates has particular expertise in matters involving the US Securities and Exchange Commission (SEC). He also helps clients evaluate and improve their compliance programs, and represents clients in complex litigation.

Before joining the firm, Coates was senior counsel in the SEC’s Division of Enforcement, where he worked from 2007 to 2015. While at the SEC,...

303-894-6141
Christina Knox White Collar Attorney Squire Patton Boggs Washington DC
Associate

Christina Knox represents international and domestic clients in white collar criminal matters, government enforcement actions and internal investigations. She represents companies and executives in, among other things, Foreign Corrupt Practices Act (FCPA) internal investigations, enforcement actions, defense matters and compliance before the US Department of Justice (DOJ) and similar authorities.

Her global government and internal investigations include representing financial institutions in economic sanctions, the Bank Secrecy Act, money laundering and bank fraud matters. She also...

202-457-6439
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