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Kendall Dacey: Hello, and welcome to the inaugural installment of our Ropes & Gray podcast series on whistleblower trends and risk mitigation. I’m your host, Kendall Dacey, and today, we will be discussing potential changes in the whistleblower litigation and enforcement landscape under a new administration. Joining me are Dan O’Connor, Greg Demers, and Amy Kossak. Dan is a litigation & enforcement partner in our Boston office and a former trial lawyer at the U.S. Securities and Exchange Commission (“SEC”). Greg is a partner in Ropes & Gray’s employment group in Boston and focuses on high-stakes whistleblower investigations and employment-related disputes. Amy is a litigation partner in Ropes & Gray’s Washington, D.C. office and spent the last decade in the Civil Fraud Section of the U.S. Department of Justice (“DOJ”) where she handled False Claims Act (“FCA”) cases, including those brought by qui tam whistleblowers.
We’re going to talk through various whistleblower trends looking ahead in 2025 and beyond. Dan, where are we with the SEC in early 2025? We’re in the transition between an outgoing and incoming presidential administration, and by extension, two SEC chairpersons. Is this transition between Biden and Trump meaningful for SEC enforcement, particularly when it comes to whistleblower actions?
Dan O’Connor: Certainly, there are differences in approach between the SEC under Presidents Biden and Trump. Both administrations, and more broadly, the political parties, have been general supporters of the SEC’s whistleblower program.
As many listeners know, SEC whistleblowers who can show that their information led to the bringing of a case that had a monetary award of at least $1 million are able to collect bounties of between 10-30% of that monetary award. Under the initial Trump administration, whistleblower awards out of the SEC totaled $453 million across 72 individuals, whereas, under the Biden administration, SEC awards more than tripled to $1.6 billion across more than 300 individuals. Now, there is a time lag here that is relevant, but without a doubt, the Gensler-led SEC, under President Biden, focused on certain avenues of enforcement that were perhaps more creative, and without a doubt, imposed substantially larger penalties. We expect the SEC, under President Trump, to return to more traditional avenues of enforcement as it did under the initial Trump regime, perhaps focused more on protection of main street investors, retail and retirees than punishing Wall Street. Additionally, all signs are that the SEC will have substantially reduced resources and personnel to pursue its program.
Kendall Dacey: Thanks, Dan. I know we had an uptick in Rule 21-F enforcement actions under the Biden administration. Can you give some background on that?
Dan O’Connor: For anyone unfamiliar, Rule 21-F prohibits any person from taking any action to impede individuals from contacting the SEC to report a possible securities law violation, including enforcing or threatening to enforce a confidentiality agreement.
Under the Biden administration, the SEC used sweeps to aggressively push how this rule was enforced out into areas where there weren’t any real allegations of actions being taken to stop whistleblowers—they looked at private and public companies across the financial services, health care, and software industries. These violations cost the companies up into the millions of dollars. The Gensler-led Commission did push the boundary on where the cases existed and how aggressively they were pursued. Many of these cases involved just mere technical violations, with language on the page being a problem as opposed to any actions that were designed to limit anyone’s ability to get in to talk to the SEC.
Kendall Dacey: Can you explain a bit more what we saw historically and what we can expect under the Trump administration?
Dan O’Connor: Most violations targeted by the SEC under the Gensler-led Commission related to company agreements, especially severance agreements and settlement agreements with customers, and these came up, oftentimes, during the course of an industry sweep. We’ve seen actions involving severance agreements that related to the fact that the payment was conditioned on a promise by the individual that they had not gone to the government with any information or that they would talk to the employer before they went to the government, a requirement for pre-notification of the employer.
The Gensler SEC began taking a fairly broad enforcement approach, going beyond the employment context and looking at agreements with consultants and other third parties, as well as settlement agreements with business clients, particularly in the brokerage area. It’s not clear to me whether this trend will continue under the Trump administration. We do know that under the Clayton administration—the prior Trump-led SEC—there were no sweeps, and the few 21-F cases that came out dealt more with actual violations of individuals being chilled from going to the SEC than the technical violations we saw in the last four years. We do have active matters today, however, both involving public company and advisers where the staff is following up on these issues using the, let’s call it, “new Gensler approach,” of looking for technical violations. The open question is whether the Commission itself will continue with that enforcement priority as the prior Gensler administration did.
President Trump’s pick for SEC Chairman, Paul Atkins, is known for having a pro-business stance. He’s one of the authors of the Commission policy on corporate penalties, which essentially was ignored under the Gensler SEC, and led to the outsized penalties that likely drove the increase in whistleblower awards over the last four years. The issue of 21-F is really one linked to enabling access to the whistleblower program, making sure people can come in and talk to the government when there is an issue, which has fairly bipartisan support. While it’s likely that under the Atkins-led Commission, the SEC will not broaden how it interprets Rule 21-F, I do think that these types of cases will continue to be pursued by both the SEC’s staff and, at some level, by the Commission itself as it thinks about how to help people get into talking to the SEC when an issue arises.
Kendall Dacey: Thanks, Dan. Amy, I’ll ask you a similar question but focused on the False Claims Act in early 2025. Is this transition between Biden and Trump meaningful for FCA enforcement, particularly when it comes to whistleblower actions?
Amy Kossak: Thanks, Kendall. When it comes to the FCA, as it happens, both major political parties have been consistent supporters of this law as a tool to pursue those who defraud the federal government. Republican Senator Chuck Grassley has been a long-time and vocal champion of the FCA. And, more recently, Attorney General Pam Bondi promised in her confirmation hearings she will defend the constitutionality of the False Claims Act—which, as we’ll discuss a little later, is under challenge—and she also has vowed to maintain staff and funding levels at DOJ to support and prosecute FCA cases.
Just to take us back a little bit, during the first Trump administration, DOJ actually set record enforcement levels for FCA cases, particularly cases involving health care fraud. This trend continued with robust enforcement throughout President Biden’s term as well. Although the enforcement priorities may be different this time around. I expect that the FCA will remain a popular tool in the government’s arsenal during the second Trump administration, just as it was the first time around.
And just as a reminder, it is not only the government that controls the pace and the focus of FCA enforcement activity. Whistleblowers—which are called “relators” in the FCA context—they play an important role here too, as relators can bring FCA actions on behalf of the government under the False Claims Act qui tam provisions. Qui tam enforcement is important as it really turbocharges the government’s ability to identify and pursue FCA cases in whatever the administration’s priority areas may be. There’s really only going to be so much that DOJ can do alone (especially if retirements and voluntary departures amid a hiring freeze all lead to fewer government attorneys dedicated to FCA enforcement), but the qui tam provisions enlist help from not only whistleblowers but from a well-funded and an active set of plaintiffs’ lawyers who have a financial incentive to go out and search for whistleblowers—perhaps whistleblowers who are aligned with the administration’s priorities—to bring instances of potential violations to the government’s attention, and then, to litigate those cases on behalf of the government if DOJ itself does not have the resources to do so.
Kendall Dacey: Thanks so much, Amy. Greg, turning to the #MeToo movement and its impact on workplace harassment claims, can you give us an overview of the significant federal laws that have been enacted recently to support survivors of sexual harassment and assault?
Greg Demers: Absolutely, Kendall. Two major pieces of federal legislation have been pivotal here. First, the Speak Out Act prevents the enforcement of non-disclosure agreements in cases of sexual assault and harassment. This means that survivors can speak out or blow the whistle, so to speak, without fear of legal repercussions—so, this is essentially an added whistleblower protection. Second, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, as the name suggests, bars employers from mandating arbitration for these kinds of cases, allowing plaintiffs to pursue their claims in court. Now, this legislation is retroactive, nullifying previous arbitration clauses. Although some are asking whether these laws will be rolled back under the Trump administration, we saw broad, bipartisan support for these bills, so in my view, any rollback is unlikely.
Kendall Dacey: Thanks for that, Greg. It’s clear that there’s a lot of activity in this space and it sounds like that won’t change any time soon. To close out, I’d like to ask each of you to provide some final thoughts about what clients can expect to see in the months and years ahead. Let’s start with Dan: Any closing thoughts about the SEC’s whistleblower program looking ahead?
Dan O’Connor: As we’ve discussed, the SEC’s whistleblower program does have general bipartisan support, and I am clear that the SEC’s staff will continue to look into these issues during ongoing cases. Additionally, I expect, to the extent that there are problems, penalties will be a lot lower for technical violations especially, where there is no actual evidence of chilling of actions by individuals to reach out to the SEC. Finally, I don’t expect that the SEC, as it’s going to be put together, will be establishing additional venues for SEC whistleblower cases. I don’t expect that they’re going to interpret the rule more broadly than it already is—in fact, what I might see is someone deciding that the SEC staff has gone too far in saying this activity or that contract language doesn’t actually constitute a chilling effect under the rule. This is because there’s been a change, of course, in how courts give deference to the SEC in interpreting its own rules.
Amy Kossak: As I mentioned before, whistleblower enforcement in the False Claims Act space is really important, and one of the most recent and, I think, high-profile things that’s happened in the FCA space is challenges to the constitutionality of the whistleblower provisions. This is something that came up in a Supreme Court case one or two terms ago, where Justice Thomas wrote a dissent and suggested perhaps the Court should revisit whether the whistleblower provisions of the False Claims Act are constitutional—that got sign-on from two other justices. And then, just recently, a district court in Florida held that the qui tam provisions are unconstitutional. Again, it’s just one district court judge for now—various courts have gone the other direction. But one of the things that’s going to be a heavily watched area is whether there’s continued challenge, which there obviously will be, to the constitutionality of the False Claims Act whistleblower provisions, at least. Just the other day, there was another Supreme Court decision in this space. Justice Thomas made the same point about the constitutionality being something the Court should consider. He got sign-on from just one other justice at that point, so perhaps people are giving second thoughts to it, but we shall see.
One of things that’s really important to keep an eye on is that if this eventually percolates up to the Supreme Court in a case where the issue is squarely presented, that could mean no more qui tam enforcement, which would really be a sea change, as relator-driven qui tam actions have been a critical tool for uncovering fraud. That said, Attorney General Bondi’s statement at her confirmation hearing about maintaining staff and funding levels for FCA enforcement and continuing to defend the FCA’s constitutionality, is a sign, I think, that FCA enforcement is alive and well, even if the areas of focus may shift somewhat to align with the new administration’s substantive priorities.
Kendall Dacey: Thanks so much, Amy. Greg, how should employers be thinking about these developments as they try to mitigate enforcement risk?
Greg Demers: With respect to 21F-17 enforcement, as Dan mentioned, we know this remains a continuing area of risk. So, a comprehensive review of an employer’s agreements and policies is a great place to start to ensure that they include the necessary whistleblower protections.
I do want to note before we wrap up that there have been a number of notable cases at the Supreme Court that create an additional overlay here. We have the Supreme Court’s decision in Murray from last year lowering the bar for whistleblower plaintiffs and holding that they do not need to prove retaliatory intent under Sarbanes Oxley. In Muldrow, another decision from last year, the Supreme Court held that a plaintiff need not show “significant harm” but only “some harm” to establish a violation of Title VII. And now, most recently in Ames, the Supreme Court seems poised to overturn the Sixth Circuit and find that white heterosexual workers do not need to meet a heightened burden in order to prove discrimination.
This is what I’ll call a trifecta of decisional law that collectively makes it easier for employees to assert claims for retaliation and discrimination in the workplace. So, employers should brace for an increase in contentious separations in the years ahead as workers and their lawyers try to leverage these decisions for a bigger payout.
Kendall Dacey: Thanks, Greg. And thank you to our listeners for tuning in. If you’d like to learn more about any of these topics we discussed today, or if we can help you to navigate any of the laws discussed in a more tailored way, please do not hesitate to contact us. You can subscribe and listen to any Ropes & Gray podcast wherever you regularly listen to podcasts, including on Apple and Spotify. Thank you again for listening.