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Constantine Cannon Attorneys Provide Comments on Model Whistleblower Award and Protection Act

Posted  July 2, 2020
By Eric R. Havian, Michael Ronickher, Chris McLamb

Following in the footsteps of the hugely successful SEC Whistleblower Program, which recently announced its largest-ever reward of $50 million, the North American Securities Administrators Association (NASAA) has proposed a Model Whistleblower Award and Protection Act that would serve as a guide for states across North America who wish to enact a compelling whistleblower program to bolster their securities enforcement.  In May, NASAA solicited comments on an initial draft of the Model Act.

Constantine Cannon attorneys Eric Havian, Michael Ronickher, and Chris McLamb teamed up with Alexis Ronickher of Katz Marshall & Banks LLP to answer the call for comments.  Although the NASAA’s first draft of the Model Act adopted many of the best practices from the SEC whistleblower program—including an anti-retaliation cause of action, a prohibition on impeding reporting to government regulators, and a sensible award process—we proposed a number of improvements that would provide more certainty for those seeking awards and greater protections against retaliation.

Improvements to the Whistleblower Rewards Program

On the rewards side, we urged NASAA to clarify that rewards would be fully mandatory for all eligible whistleblowers.  As drafted, the Model Act suggested that a state securities administrator would have discretion over whether to issue an award in a particular case.  But history has shown that discretionary awards do not sufficiently incentivize people to come forward.  As Congress recognized when enacting the modern SEC whistleblower program, mandatory rewards are the critical component that incentivize individuals to blow the whistle.  To ensure the success of the Model Act, NASAA should follow Congress’ lead and adopt the mandatory award regime established under Dodd-Frank.

Second, we recommended that NASAA follow the SEC’s lead and include restitution—payments made by a wrongdoer to the victims—when calculating a whistleblowers reward.   The Model Act does not pay whistleblower awards out of the money that would otherwise go to victims, but instead directs that awards “shall be paid from a fund established elsewhere under state law.”   This prudent structure, modeled after the SEC’s Investor Protection Fund, ensures that whistleblowers can be rewarded for helping return money to investors without taking money from the victims’ pockets.   NASAA should adjust the Model Act to ensure that a whistleblower whose information leads to restitutions for victims will not receive less than an identical whistleblower whose case does not.

Finally, we suggested that the Model Act adopt the SEC’s regime for anonymous reporting, which is often the critical protection that persuades vulnerable whistleblowers to come forward.  In many cases, those with the most critical information, which would be of the most use to regulators and law enforcement, are also the most vulnerable to overt retaliation and more subtle assaults on their future careers.  Under the SEC program, the ability to proceed anonymously at the outset has convinced many of these key whistleblowers to bring their information to light.

Better Protections Against Retaliation

We also proposed several changes to improve the Model Act’s retaliation provisions.  First, we urged NASAA to extent protections to internal whistleblowing, not just for those who go immediately to government regulators.  Most employees who encounter potential securities violations at work first report the misconduct internally.  Under federal law, these employees are protected from retaliation under the Sarbanes-Oxley Act.  The Model Act should offer the same protections to encourage such internal whistleblowing because it can be one of the most effective ways to quickly stop ongoing misconduct and in doing so protect investors from further harm.

In addition, we proposed expanding the remedies for whistleblowers who suffer retaliation to include damages for emotional distress and reputational harm, as well as a non-waivable right to a jury trial.  These remedies are typically available in whistleblower statutes and provide redress for the frequent forms of retaliation that have no economic damages, such as industry blackballing, “outing” a whistleblower, and workplace harassment.

And finally, we asked NASAA to eliminate the Model Act’s unnecessary exclusions from retaliation coverage.  Federal corporate whistleblower laws contain no similar exclusions from retaliation protections, and they are not necessary.  These novel exclusions would only serve to dissuade whistleblowers with potentially helpful information from coming forward, particularly since many whistleblowers are already intimidated by the process and would likely be fearful that they might say or do something that could result in the loss of their retaliation protections.

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The authors of the proposed Model Act should be commended for their efforts to standardize and expand the protections and awards available to whistleblowers who expose securities laws violations.  With the improvements we have suggested, the Model Act can serve as a guide for state legislatures across North America.  When the SEC enacted a whistleblower regime incorporating these provisions, it received an enormous boost to enforcement efforts.  States that adopt similar measures should achieve similar results.

To read our full comment letter to the North American Securities Administrators Association, click here.

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Tagged in: Anonymity, Importance of Whistleblowers, Retaliation, SEC Whistleblower Reward Program, Whistleblower Case, Whistleblower Eligibility, Whistleblower Rewards,


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