SEC Brings 1st Stand-Alone Action for Retaliation Against an
SEC Whistleblower

On Thursday, the Securities and Exchange Commission (“SEC”)
imposed sanctions on International Game Technology (“IGT”) for
retaliating against and firing an employee who blew the
whistle on alleged accounting and financial statement frauds
at IGT.  This is the second time that the SEC has brought an
action against a public company for retaliating against an SEC
whistleblower.  In 2014, the SEC brought an action against a
company for both violating the Investment Advisers Act of 1940
and also for retaliating against a whistleblower.  (I
discussed that case, titled
In the Matter of Paradigm Capital Management and Candace
King Weir, in one of my earlier posts, which you can find
here.)

The recent case against IGT is noteworthy because it marks the
first time that the SEC has brought a stand-alone action
against a public company based solely upon the company’s
retaliation against an SEC whistleblower.  Among other things,
the SEC whistleblower had always received positive performance
evaluations from IGT, had never been disciplined for his job
performance, had been promoted to the position of a director
of a division, and had received bonuses and grants that were
at or near the highest awarded for employees in his branch of
the company.  The whistleblower raised concerns about IGT’s
accounting methodology and financial statements both directly
to his supervisors and through an IGT internal hotline for
reporting grievances.

With the assistance of outside counsel, IGT conducted an
internal investigation into the allegations.  After the
internal investigation began, the whistleblower submitted a
complaint to the SEC, and a few weeks later informed IGT that
he had done so.

While the internal investigation was going on, IGT removed the
whistleblower from a project related to its merger with
another company.  IGT also instructed the whistleblower not to
attend an annual global gaming industry convention that was
attended by major vendors and suppliers, which the
whistleblower had attended in prior years.

Apparently the result of the internal investigation was that
IGT disagreed with the whistleblower.  Thereafter, IGT fired
the whistleblower.

Section 21F(h) of the Securities Exchange Act of 1934
“prohibits an employer from discharging, demoting, suspending,
threatening, harassing, directly or indirectly, or in any
other manner discriminating against, a whistleblower in the
terms and conditions of employment because of any lawful act
done by the whistleblower in, among other things, providing
information regarding potential violations of the securities
laws to his employer or to the Commission”.  The SEC found
that IGT’s conduct violated Section 21F(h), ordered IGT to
cease and desist from committing or causing any future
violations of Section 21F(h), and required IGT to pay a civil
penalty of $500,000.   (Order, p. 5.)

In addition to being the first stand-alone action brought by
the SEC for retaliating against an SEC whistleblower, the IGT
case is significant for another reason:  the Order does not
state whether the SEC agreed or disagreed with the
whistleblower’s allegations against IGT.  For purposes of the
Order, the merits of the whistleblower’s complaint appear to
have been irrelevant.  The Order is based solely on the fact
that the SEC whistleblower believed his allegations at the
time when he made them, and was retaliated against and fired
for having raised them.  In the future the SEC may or may not
bring a case against IGT for the accounting and financial
statement frauds, but the merits of those claims seems to have
had no relevance to the SEC’s present case against IGT, which
was based entirely on IGT’s retaliating against the
whistleblower.

The
new Chief
of the SEC’s Office of the Whistleblower was
quoted
as stating “Bringing retaliation cases, including this first
stand-alone retaliation case, illustrates the high priority we
place on ensuring a safe environment for whistleblowers” and
“We will continue to exercise our anti-retaliation authority
when companies take reprisals for whistleblowing efforts.”

This IGT case is the latest in a string of SEC cases
vigorously pursuing public companies and financial
institutions that retaliate against SEC whistleblowers.  As I
wrote about last week, in the past two months, the SEC has brought three cases
against companies for using severance or separation agreements
that sought to inhibit or prevent their former employees from
reporting to the SEC. 
Last year, the SEC brought a case against a company for using
confidentiality agreements that prohibited its employees from
discussing the substance of internal interviews without
advance clearance from the company’s law department, and the
year before that the SEC brought its case against Paradigm
Capital Management that I mentioned above.  Given the comments
by the Chief of the Office of the Whistleblower, this trend is
likely to continue.

* * *

About the Pickholz Law Offices LLC

The Pickholz Law Offices LLC is a law firm that focuses on
representing clients involved with investigations conducted by
the U.S. Securities and Exchange Commission, FINRA, and other
securities regulators.

The Pickholz Law Offices has represented employees, officers,
and others in SEC whistleblower cases involving financial
institutions and public companies listed in the Fortune Top
10, Top 20, Top 50, Top 100, Top 500, and the Forbes Global
2000. We were the first law firm ever to win an SEC
whistleblower award for a client on appeal to the full
Commission in Washington. Inside Counsel magazine named this
achievement one of the five key events of the SEC
whistleblower program. Examples of the
Firm’s SEC whistleblower cases are available here.

In addition to representing SEC whistleblowers, since 1995 the
Firm’s founder, Jason R. Pickholz, has also represented many
clients in securities enforcement investigations conducted by
the SEC, FINRA, the U.S. Department of Justice and US
Attorney’s Offices, State authorities, and more. Examples of
some of the many
securities enforcement cases that Mr. Pickholz has been
involved with are available here.

You can see what actual clients have had to say about The
Pickholz Law Offices by going to the
Client Reviews page on our website or by clicking here.

How to Contact the Pickholz Law Offices LLC

If you would like to speak with a securities lawyer or SEC
whistleblower attorney, please feel free to call Jason R.
Pickholz at 347-746-1222.

The Pickholz Law Offices remains open and will be fully
operational through teleworking while we all grapple with this
terrible pandemic. We hope that all of our clients,
colleagues, friends, and their families remain safe and
healthy. Our thoughts and prayers go out to everyone who has
been affected by COVID-19.