(The news featured below is a selection from the news covered in SEC Today, which is distributed to subscribers of SEC Today.)

SEC Responds to Senate Letter on Whistleblower Provisions

The SEC has responded to a letter written late last year by the Senate authors of the corporate whistleblower provision found in section 806 of the Sarbanes-Oxley Act. The Commission detailed its efforts to protect whistleblowers and expressed support for the aggressive enforcement of section 806 in order to deter retaliation against them.

In their letter to Chairman William Donaldson, Senators Charles Grassley (R-IA) and Patrick Leahy (D-VT) urged the Commission to vigorously enforce section 806 and asked the Commission to respond to questions regarding its enforcement and oversight. In their letter, they made reference to the first Department of Labor decision finding retaliation by a public company against an employee in violation of section 806.

Section 806 prohibits companies from discriminating against employees who provide information or complain about conduct they reasonably believe is a securities violation or securities fraud, or who file or participate in proceedings related to fraud against shareholders.

Donaldson, in response to the letter, said the SEC shared the Congressional commitment to the aggressive enforcement of section 806 to deter retaliation against corporate whistleblowers. He emphasized that the SEC and the Department of Labor have been working together to ensure that whistleblower complaints are carefully considered.

While section 3(b) of Sarbanes-Oxley states that a violation of the Act must be treated for all purposes in the same manner as a violation of the 1934 Act, he noted, section 806 expressly gives a whistleblower relief by authorizing the filing of a complaint with the Secretary of Labor, who has delegated to OSHA the responsibility for receiving and investigating section 806 whistleblower complaints.

To date, the Commission has neither proposed rules concerning section 806 nor filed an enforcement action under the statute. While describing section 3(b) as a useful provision allowing the SEC to enforce new laws enacted under Sarbanes-Oxley, Donaldson said that the Commission has been guided by the principle that its resources can be applied most effectively and efficiently to combat substantive violations of the securities laws.

The SEC has relied on OSHA's efforts when it comes to the prosecution of stand-alone violations of the whistleblower protection provisions. To the extent that a company retaliates against an employee for blowing the whistle on practices that constitute violations of the securities laws, Donaldson assured the senators that the SEC would investigate and bring an enforcement action against the company for any substantive violations. 

Donaldson also detailed the SEC's coordination with the Labor Department with regard to section 806 whistleblower complaints. For example, OSHA regulations require it to notify the SEC of such complaints, including their allegations and substance.

The SEC and the DOL have a system in place under which the Department sends referrals directly to the Division of Enforcement, including complaints and notice of determination letters. After receiving a referral, the Enforcement Division logs it in, sends a response to OSHA and, if appropriate, opens an investigation into possible violations of the federal securities laws.

OSHA must provide the SEC with copies of investigative reports and any orders associated with hearings or administrative appeals. The Commission may participate directly at any stage of the resulting proceedings as amicus curiae.

Donaldson noted that the DOL and the SEC are considering the need for a memorandum of understanding to further facilitate coordination.

In their letter, the senators analogized the confluence of the provisions of the securities and criminal laws in this area to the Atomic Energy Act, which authorizes the Nuclear Regulatory Commission to investigate allegations that employees have been discriminated against for raising concerns and to take enforcement action if there is evidence of discrimination.

They noted that the DOL and the NRC have entered into a memorandum of understanding to facilitate inter-agency cooperation and asked whether such a memorandum of understanding is being negotiated or contemplated between the SEC and the DOL regarding the Sarbanes-Oxley whistleblower provision and the 1934 Act's criminal provisions.