Utah Whistleblower Hotline

SEC settles first stand-alone retaliation enforcement action

SEC settles first stand-alone retaliation enforcement actionLate in September, the SEC Office of the Whistleblower brought its second stand-alone whistleblower retaliation enforcement action against International Game Technology (“IGT”) over allegations that the company fired “an employee with several years of positive performance reviews because [the employee] reported to senior management and the SEC that the company’s financial statements may be distorted.”  In light of the allegations against it, IGT agreed to pay a half-million dollar penalty to the SEC.  The SEC’s stand-alone retaliation enforcement action against IGT represents the second of its kind, but the first in which the SEC found no underlying violation by the company.  The other retaliation enforcement action was filed against hedge fund Paradigm Capital Management in 2014, whereby Paradigm agreed to pay the SEC just under $2.2 million to settle the case.

Whistleblower Was an Exemplary Employee

The SEC’s retaliation enforcement action contended that the whistleblower began working at the company in 2008.  During his time at IGT, the SEC said the whistleblower received a number of favorable performance reviews, including a favorable mid-year review in 2014.  However, shortly after his favorable mid-year review in 2014, the SEC claimed the whistleblower was terminated.  At the time of his termination in October 2014, the SEC noted that the whistleblower had been promoted “to the position of a director of a division responsible for a spending budget of over $700 million and supervision of up to eleven direct reports.”

The SEC also noted that “the [w]histleblower’s bonuses and grants were at or near the highest awarded for employees within the VP Supervisor’s organization” between 2011 and when he was fired in October 2014.  Additionally, the SEC said that prior to the time he was terminated the whistleblower “had never been formally disciplined for his job performance, including never receiving any corrective action, performance correction memo, or performance improvement plan.”

Whistleblower Raised Concerns to Supervisors During Presentation

The SEC’s retaliation enforcement action set forth that the whistleblower raised concerns to his managers, to the company’s internal complaint hotline, and to the SEC that IGT’s financial statements may have been misstated.  Specifically, the whistleblower complained that the financial statements may have been inaccurate due to IGT’s cost accounting model relating to its used parts business.  As part of his job, the whistleblower was responsible for evaluating the pricing methodology IGT used to price its used parts.  However, the whistleblower was not responsible for IGT’s overall accounting functions.

Whistleblower Gets Into Heated Argument With Executive Supervisor Over Concerns

The SEC specifically claimed that, during a presentation to his supervisors, the whistleblower raised the possible impact of IGT’s cost model on the accuracy of the company’s financial statements, which included a heated argument between the whistleblower and an executive supervisor.  The SEC said that, once the meeting was over, the executive supervisor sent an email to IGT’s vice president stating that “I can’t allow [the whistleblower] to place those inflammatory statements into presentations, if there is no basis in fact.”  Also at that time, the executive supervisor recommended that the whistleblower be terminated.

Whistleblower Submits Complaint to IGT’s Internal Hotline

Subsequent to the executive supervisor’s recommendation that the whistleblower be terminated, “the [w]histleblower submitted a complaint on IGT’s Integrity Action Line (“IAL”), an internal hotline for reporting grievances.”  The whistleblower explained:

With a majority of Depot parts going to internal IGT game operations our internal game operations is paying more than the market rate for the repaired parts for the parts and more than the internal cost for the parts. Conversely, the depot is charging more for parts than it costs to repair them. In most cases, this would not be a problem, but the primary customer is internal. . . . The current system distorts the real accounting and reporting. IGT gaming operations has been subsidizing the service organization.

HR Recommends Putting “Hold” on Whistleblower’s Termination

On account of the whistleblower’s complaint to the IAL, an IGT HR representative directed the executive supervisor that had recommended that the whistleblower be terminated “to put a ‘hold’ on the existing plan to terminate the [w]histleblower.”

IGT Conducts Own Internal Investigation, Finds No Misstatements in Financials

Following the whistleblower’s internal complaints regarding IGT’s publicly-reported financial statements, IGT conducted its own internal investigation with the assistance of outside counsel.  IGT’s internal investigation determined that its reported financial statements did not contain the misstatements the whistleblower claimed they did.

Whistleblower Endures Retaliation, Eventually Terminated

During the pendency of IGT’s internal investigation, the SEC said the whistleblower “was removed from two opportunities he considered significant to performing his job successfully.”  First, the whistleblower was removed “from a project associated with IGT’s integration with GTECH in anticipation of [a] merger” between the two companies.  Second, the whistleblower was told “not to attend an annual global gaming industry convention attended by IGT’s major vendors and suppliers, which the [w]histleblower had attended in previous years.”  Eventually, after completing its internal investigation, IGT terminated the whistleblower.

IGT Agrees to Pay $500k to Settle Case with SEC

In light of the foregoing actions, the SEC found that IGT violated Section 21F(h) of the Securities Exchange Act of 1934, which precludes employers from “dicharg[ing], demot[ing], suspend[ing], threaten[ing] harass[ing] directly or indirectly, or in any other matter discriminat[ing] against, a whistleblower.”  Under the SEC’s order, IGT agreed to “within 14 days of the entry of this Order, pay a civil money penalty in the amount of $500,000 to the Securities and Exchange Commission.”

SEC’s Retaliation Enforcement Action Came Despite No Underlying Violation by IGT

The SEC’s retaliation enforcement action against IGT is significant because it marks the first retaliation enforcement action in which the SEC did not find an underlying violation by the company.  Presumably, because the SEC’s order does not discuss the findings of IGT’s internal investigation, the SEC did not take issue with the company’s financial statements.  Rather, it appears that the SEC solely took issue with IGT’s termination of an employee it had just promoted to a high-ranking position within the company.  Essentially, it appears that a good employee was fired after he raised concerns about the methods the company used to complete its financial statements, and, as a result, the employee was fired.  IGT, by all appearances wanted the whistleblower to remain employed within their company, at least until he raised his concerns and got into a heated disagreement with an IGT executive.

Contact Our Whistleblower Attorney Team Today

If you or someone you know has been retaliated against at your workplace after raising concerns regarding your company’s business practices, please do not hesitate to contact our whistleblower attorney team for a consultation.  Several laws, including the Dodd-Frank Act and the Sarbanes-Oxley Act, provide explicit protections for whistleblowers against workplace retaliation.  Our whistleblower attorney team can be reached via email at kporter@chrisjen.com, or by phone at 801-323-5000, or through our contact form.

Photo Cred.: playbuzz.com

Copyright 2016

%d bloggers like this: