FCPA Compliance and Ethics Blog

October 22, 2013

The Tuck Rule, the Push Rule and Retaliation Against Whistleblowers

Filed under: FCPA,SEC,Whistleblower — tfoxlaw @ 1:01 am
Tags: , , , , ,

I cannot say the missed horse-collar on Johnny Football on the Texas A&M Aggies final series takes the worst officiating call of this past weekend award but the un-sportsman like call against the Patriots on the New York Jets first field goal attempt in overtime ranked as the worst pro-football officiating FUBAR of the weekend. For those of you who missed it, on an otherwise unsuccessful Jets field goal attempt, Patriot Chris Jones was flagged for pushing teammate Will Svitek from behind to violate a rule that says players cannot push teammates on the line of scrimmage into the offensive formation. To say that I am still confused by what happened because after watching about 20 different replays of the play would be an understatement; I still am not sure that actually happened or even if Jones pushed Svitek. I said to my wife that not only had I never heard of that rule, I had never seen a penalty called for such conduct; the TV announcers then said the same thing.

In thinking about that play and the Patriots loss to the Jets, I considered the following: is it now the beginning of the end of the Patriots dynasty which started on an equally obscure rule and penalty, aka “The Tuck Rule”? In the play during a 2001 playoff game, Raiders’ cornerback Charles Woodson sacked Patriots’ quarterback Tom Brady, which in turn, caused a fumble that was eventually recovered by Raiders’ linebacker Greg Biekert, and would have almost certainly sealed the game. Officials reviewed the play and eventually determined that Brady’s arm was moving forward, when it was actually moving backwards, thus making it an incomplete pass. Got it?

It was the first playoff game that Patriot coach Bill Belichick had won as head coach. If the Patriots do not win that game, they do not start a run of three Super Bowl victories in four years and Tom Brady probably never becomes the Golden Boy. Now I wonder if the Patriots 11 year run as one of the NFL’s all-time great franchises has ended with an equally obtuse and obscure rule as the Tuck Rule. I also wonder if the Patriots loss to the Jets portends the beginning of the end of their dynasty; all for the want of a rule no one had ever heard about or had seen enforced. Bookends indeed.

I thought about such obtuseness and obscureness when I ready the Memorandum and Order in Meng-Lin Liu v. Siemens AG, in the US District Court for the Southern District of New York. This case involved a whistleblower, Liu, who claimed that he was discharged by the defendant in retaliation for internally reporting violations of Siemens compliance program in North Korea and China. Liu had brought suit under the Dodd-Frank Act for retaliation against a whistleblower. The New York District Court followed the logic of the Fifth Circuit Court of Appeals in the Asadi decision that the Dodd-Frank Act itself does not explicitly provide for an extraterritorial application of the anti-retaliation provision even though a foreign employee may fall within the definition of a whistleblower for whistleblower award purposes. So even though Dodd-Frank and Sarbanes-Oxley (SOX) protect extraterritorial disclosures, they do not protect extraterritorial employees who make them. Got it, sort of like the Tuck Rule; was his arm moving forward, backwards or does it even matter?

All of this was based in part on the fact that “This is a case brought by a Taiwanese resident against a German corporation for acts concerning its Chinese subsidiary relating to alleged corruption in China and North Korea. The only connection to the United States is the fact that Siemens has ADRs [American Depository Receipts] that are traded on an American exchange.” I guess the Court was unaware of the fact that Siemens paid the largest fine for Foreign Corrupt Practices Act (FCPA) violations in the history of the world, ever. There must have been some US jurisdiction there somewhere.

Next the Court weighs into the “apparent incongruity” that while the Dodd-Frank explicitly incorporates SOX whistleblowing into the anti-retaliation protection provisions; for Dodd-Frank protections to apply there must be a disclosure to the Securities and Exchange Commission (SEC). However, for SOX protections to lie, certain internal disclosures are not only protected but required. The SEC itself promulgated a rule that an employee has anti-retaliation protections if (1) you have a ‘reasonable belief’ that securities has or will occur; (2) you provide that information to the SEC; and (3) report such conduct to “persons or governmental authorities other than the [SEC].”

To further confuse things, the Court accepts a Department of Labor (of all things) interpretation that reporting of FCPA violations does not fall within SOX protections because they are not violations of “any rule or regulation of the Securities and Exchange Commission” or “any provisions of Federal law relating to fraud against shareholders.” The Court then goes on to say that the plaintiff alleges that he reported violations of FCPA-relevant securities laws but the plaintiff’s Compliant does not specifically allege “that rule or specifically address recordkeeping violations.” The Court ends this section by stating that SOX does not “protect disclosures of FCPA violations.”

As the FCPA Professor might say “Say What”? To the plaintiff, they Court is saying that we are dismissing your compliant because you did not list with specificity either the Securities Exchange Act section a company violated in their conduct or address recordkeeping violations. But it really does not matter because even if you had listed them with sufficient specificity, SOX does not protect you, period.

In addition to being a little bit more than confusing, this Court ruling sets corporate compliance programs back on their collective backsides. Corporate America fought long and hard to require that employees report allegations of corruption and bribery internally before they went to the government. The reason that companies made this request was that it was only fair to allow companies to fix problems of which they may not have been aware. While the SEC did not require internal reporting as a prerequisite for Dodd-Frank whistleblowing, it did incentivize such whistleblowers to report internally first before submitting information to the SEC. But now that incentive is worthless if an employee who does so can be terminated at will for internally reporting concerns about bribery and corruption.

Just as the push rule may be the point at which the Patriots begin to tip away from their 11 year run as the best franchise in pro football, the Liu decision may be the bookend with the Asadi decision which portends the end of foreign employee protection against retaliation for internal whistleblowing. It is hard to conceive that neither Congress nor the SEC understood that by its nature, FCPA violations would occur overseas since it is a law which prohibits bribery of foreign government officials, not US government officials. While both the Southern District of New York and the Fifth Circuit Court of Appeals may think they are doing corporations a favor by ruling against international employees who internally report, the reality is that both the Liu and the Asadi decision out of the Fifth Circuit will both hurt corporations in the long run as now employees are only protected if they run to the SEC without giving the companies a chance to investigate, remediate or self-disclose any alleged FCPA violations.

As for the Patriots, the King is dead; long live the [next] King. May your reign be as majestic as the Patriots has been.


Please join me Tuesday, Oct. 22 at noon CDT for a webinar on what I think are the Five Critical Trends in FCPA Compliance for 2014. It is hosted by The Network and you can attend at no charge. For details and registration, click here.

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© Thomas R. Fox, 2013

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