As I end this month of the Land of 1000 podcasts, I conclude with a week of King Arthur and his Roundtable themed-podcasts. It turns out there are many compliance lessons from the entire oeuvre of Arthurian legends. Many of the tales can inform your (modern day) compliance program. Today we consider one of the most interesting characters in the Arthur canon, The Green Knight and how this character presages the ever-growing protections for whistleblowers.
The Green Knight was so called because his skin and clothes are green. The meaning of his greenness has puzzled scholars since the discovery of the poem, that identifies him as the Green Man, a vegetation being in medieval art; a recollection of a figure from Celtic mythology; a Christian symbol or the Devil himself. According to Wikipedia, C. S. Lewis suggested the character was “as vivid and concrete as any image in literature” and J. R. R. Tolkien called him the “most difficult character” to interpret in the introduction to his edition of Sir Gawain and the Green Knight. His major role in Arthurian literature includes being a judge and tester of knights, and as such the other characters see him as friendly but terrifying and somewhat mysterious.
In his primary story with Sir Gawain, the Green Knight arrives at Camelot during a Christmas feast, holding a bough of holly in one hand and a battle-axe in the other. Despite disclaim of war, the knight issues a challenge: he will allow one man to strike him once with his axe, under the condition that he return the blow the following year. At first, Arthur takes up the challenge, but Gawain takes his place and decapitates the Green Knight, who retrieves his head and tells Gawain to meet him at the Green Chapel at the stipulated time. One year later, while Gawain is traveling to meet the Green Knight, he stays at the castle of Bercilak de Hautedesert. At Bercilak's castle, Gawain’s loyalty and chastity is tested, Bercilak sends his wife to seduce Gawain and arranges that they shall exchange their gains for the other’s. On New Year's Day, Gawain meets the Green Knight and prepares to meet his fate, where upon the Green Knight feints two blows and barely nicks him on the third. He then reveals that he is Bercilak, and that Morgan le Fay had given him the double identity to test Gawain and Arthur.
This story of the Green Knight’s testing informs the protection of whistleblowers by the SEC. It began with the Paradigm securities SEC enforcement action where an award was made to the whistleblower based upon the company’s retaliation against her. The settlement was for $2.2MM and $600,000 of that amount was paid to the whistleblower for the firm’s retaliation. This was the first award to a whistleblower for retaliation from the act of whistleblowing. The award is 30% of $2.2MM, which is the maximum amount a tipster can get under the program. The agency said the “unique hardships” he faced were a factor in the size of his award. SEC Enforcement Director, Andrew Ceresney, was quoted at the time ““We appreciate and recognize the sacrifice this whistleblower made and the important role the whistleblower played in the success of the SEC’s first anti-retaliation enforcement action.””
Next there was the KBR pre-taliationfine and Cease and Desist Order involving KBR. In this matter, KBR was fined for having language in its internal employee Confidentiality Agreement that required employees to go to the company’s legal department before releasing certain confidential information to outside parties such as the SEC. The SEC held that such restrictions violated the “whistleblower protection Rule 21F-17 enacted under the Dodd-Frank Act. KBR required witnesses in certain internal investigations interviews to sign confidentiality statements with language warning that they could face discipline and even be fired if they discussed the matters with outside parties without the prior approval of KBR’s legal department. Since these investigations included allegations of possible securities law violations, the SEC found that these terms violated Rule 21F-17, which prohibits companies from taking any action to impede whistleblowers from reporting possible securities violations to the SEC.” This was in the face of zero findings that KBR had actually used such language or restrictions to prevent any employees from whistleblowing to the SEC.
Then we have the case of Tony Menendez, who was profiled by Jessie Eisinger in an article entitled “The Whistleblower’s Tale: How an Accountant Took on Halliburton”. The article told the story of a whistleblower, who took his concerns to government regulators and was then outed by the company as the SEC whistleblower and retaliated against. Interestingly, the SEC took no action on the whistleblower claims and the company argued on appeal that “since the SEC hadn’t brought any enforcement action, his complaint about the accounting was unfounded.” The company also claimed that simply because the whistleblower was identified by name, this alone was not the basis for a “material adverse action” against him. While Halliburton won at the administrative hearing level, it lost at the Fifth Circuit Court of Appeals.
So now there is a Court of Appeals opinion holding that if whistleblowing was a “contributing factor” only to the retaliation. Further, the employee is not required to prove motive. Well-known whistleblower expert Jordan Thomas also explained in the Eisinger article, “Whistleblowers can be victims of retaliation even if they are ultimately proved wrong as long as they have a “reasonable” belief that the company was doing something wrong.”
All of this is tempered by the US Supreme Court decision in Digital Realty Trust v. Somers. In a unanimous 9-0 decision, the Court made clear that only a person who reports actions to the SEC will benefit from the anti-retaliation and discrimination protections afforded under Dodd-Frank. The case involved Paul Somers, who was a Vice President (VP) at Digital Realty Trust, Inc. (DLR). He alleged he was dismissed after reporting suspected security law violations to senior management of the company for which he was terminated. Somers brought suit in federal district court for wrongful termination and retaliation barred by Dodd-Frank.
The Court detailed the differences in whistleblower provisions between Dodd-Frank and SOX. Under SOX, an “employee qualifies for protection when he or she provides information or assistance either to a federal regulatory or law enforcement agency, Congress, or any “person with supervisory authority over the employee.” However, a discriminated-against or retaliated-against employee must seek redress by filing a complaint with 180 days with the Secretary of Labor. If the Secretary of Labor does not respond, the whistleblower can file suit in federal court and obtain the remedies of “reinstatement, back-pay with interest, and any “special damages sustained as a result of the discrimination,” among such damages, litigation costs.”
It appears that the SEC will be more like the Green Knight going forward. It will be a tester to determine if retaliation against whistleblowers occurs. From preventing companies from trying to stop whistleblowing via CA’s, to monetary awards for retaliation even where there is no SEC or government action taken, to the award to whistleblowers as a part of an SEC settlement for retaliation by their former employers; the SEC is making very clear that they will test how your company treats whistleblowers. If the SEC finds your company’s conduct lacking, you may well be facing something like the Green Knight going forward.