By Andrew S. Boutros, William L. Prickett, Christopher Robertson, and Craig B. Simonsen

Seyfarth Synopsis: What, if any, steps the government will take to appeal the Tenth Circuit’s Bandimer’s decision remains to be seen. The government may elect to petition the entire Tenth Circuit to hear the case en banc.  Or the government might ask the Solicitor General to petition the Supreme Court to grant certiorari to take up the issue and resolve this newly-formed circuit split once and for all.

A divided Tenth Circuit Court of Appeals has held that the U.S. Securities and Exchange Commission’s (SEC) in-house administrative law judges (ALJs) are not constitutionally appointed as required by the Constitution’s Appointment Clause, thereby increasing the likelihood that the U.S. Supreme Court will take up the issue to resolve a circuit split between two federal appellate courts. The ruling by the Denver-based federal appeals court, marked a setback for the SEC amid increased challenges by defendants who question the fairness of the agency’s administrative court system. Bandimere v. United States Securities and Exchange Commission, No. 15-9586 (10th Cir. December 27, 2016).

The holding in Bandimere also marked a significant departure from the D.C. Circuit, which in August 2016 upheld the constitutionality of the SEC’s use of in-house administrative judges. See Raymond J. Lucia Companies, Inc., et al. v. Securities and Exchange Commission, 832 F.3d 277, 281 (D.C. Cir. 2016).

In Bandimere, the Tenth Circuit considered whether the five ALJs working for the SEC were employees or inferior officers. The court concluded that, based on Freytag v. Commissioner of Internal Revenue, 501 U.S. 868 (1991), the SEC ALJ who presided over an administrative enforcement action against the petitioner David Bandimere was an inferior officer. Because the SEC ALJ was not constitutionally appointed, the Court held that the ALJ held his office in violation of the Appointments Clause. U.S. Const. art. II, § 2, cl. 2.

In his dissent, Circuit Judge Monroe McKay expressed his “fears of the probable consequences” that may “allow malefactors who have abused the financial system to escape responsibility.” Bandimere, p. 11. Judge McKay observed that the majority had “effectively rendered invalid thousands of administrative actions” through its potential impact on ALJs at agencies beyond the SEC.

In addition, the Wall Street Journal had previously studied the issue and demonstrated that over the last several years, the SEC has been sending more cases to its in-house ALJs, and in doing so, was “enjoying a higher success rate there than in federal courts.”  A U.S. Chamber of Commerce report expressed similar concerns, saying “the [SEC] preference for litigation of significant cases before administrative law judges has not been confined to insider trading violations.” Examining U.S. Securities and Exchange Commission Enforcement: Recommendations on Current Processes and Practices (July 2015), p. 14.

What, if any, steps the government will take to appeal the Tenth Circuit’s Bandimer’s decision remains to be seen.  The government may elect to petition the entire Tenth Circuit to hear the case en banc.  Or the government might ask the Solicitor General to petition the Supreme Court to grant certiorari to take up the issue and resolve the newly-formed circuit split once and for all.  In the meantime, many litigants who have received adverse rulings from the SEC’s ALJs are expected to dispute those rulings in federal court.  How the federal courts will handle such challenges remains an open question, but the uncertainly of the current state of affairs certainly presents an avenue worth exploring for many defendants who disagree with their SEC ALJ outcomes.

Those with questions about any of these issues or topics are encouraged to reach out to the authors, your Seyfarth attorney, or any member of the Seyfarth Shaw’s White Collar, Internal Investigations, and False Claims Team, Securities Litigation Team, or Whistleblower Team.

By Kevin A. Fritz and Kyla Miller

Seyfarth Synopsis: SEC announced they are proposing a new rule to elicit more information about the diversity of corporate board members, maintaining that the amount of minority directors at the largest public companies has “stagnated” at 15%.

The Securities and Exchange Commission (SEC), long known as “the disclosure agency” has a strong impact on corporate governance. The SEC can require public companies to provide investors with specific information to inform their investment and voting decisions. Although the SEC cannot determine who will be on the corporate board, they can require disclosure about who is serving and why they were selected.

SEC Chair Mary Jo White, speaking at a conference in San Francisco on June 27th, 2016, shared how the SEC plans to use its authority as a disclosure agency to require more information about the diversity of corporate boards. According to White, “the low level of board diversity in the United States is unacceptable.” “Our lens of board diversity disclosure needs to be re-focused in order to better serve and inform investors.” White would like to see more meaningful board diversity disclosures in companies’ proxy statements. This change follows a rather toothless rule passed by the SEC in 2009 that unintentionally allowed diversity disclosures to remain largely optional.

Startling Statistics

This announcement comes at the heels of a recent study by the Government Accountability Office (GAO). According to the GAO, if women continue to join corporate boards at the current rate, it will take more than 40 years to reach a 50-50 split. Corporate Boards: Strategies to Address Representation of Women Include Federal Disclosure Requirements, GAO-16-30 (December 2015). The report analyzed data from S&P 1500 companies from 1997 to 2014.  By way of example, Catalyst, a diversity nonprofit, reported that in 2009, women held 15.2% of board seats at Fortune 500 companies. Today, that number has only risen to 19.9%. Even more disconcerting is that the percentage of companies with at least one minority director has declined from 90% in 2005 to 86% in 2015.

The 2009 Rule

The SEC’s 2009 rule requires companies to disclose whether and how their nominating committees consider diversity, and if they have a policy, how its effectiveness is assessed. “Proxy Disclosure Enhancements,” 74 Fed. Reg. 68334 (December 23, 2009). The rule was designed to inform investors about investment and voting decisions. Critics have stated that investors are interested in something more – such as racial, ethnic, and gender diversity of boards. As it stands, companies can comply with the rule without disclosing much information. If a company informs the SEC that they have no formal policy, they have met their burden. If that sounds unlikely, keep in mind that only 8% of companies in the S&P 100 reported they had a formal diversity policy for board members.

Inconsistent Definitions of “Diversity”

The 2009 rule also fell short by failing to define diversity. Unclear standards have led to companies defining it in ways that do not include race, ethnicity or gender. Aaron A. Dhir, author of “Challenging Boardroom Homogeneity: Corporate Law, Governance, and Diversity,” compiled and analyzed proxy statements from S&P’s 100 index. He found that between 2010 and 2013, only about half of companies in S&P’s 100 index interpreted diversity to mean gender, race or ethnicity. Most commonly companies cited “diversity of experience” as a deciding factor.


Investors are looking at detailed information about corporate board composition because studies show that diverse boards bring better returns. Diversity helps companies function better, as demonstrated by the strong correlation with company performance. Investors recognize that having a wide range of perspectives in a boardroom is essential to effective corporate governance, and companies should be aware of that desire and disclose appropriately.

Some companies have already provided voluntary disclosures above and beyond what is required under the current rules. According to White, these disclosures demonstrate that requiring more specific information would not be overly burdensome. Even so, it is shown to be both desired and needed by investors.

Although White did not reveal what the new changes will look like, one proposal from public fund fiduciaries in March 2015 encouraged the SEC to disclose all corporate director’s gender, race, and ethnicity alongside their skills and experiences. Time will tell what particular disclosures the new rule will require.

If you have questions regarding this topic, please contact the authors or your Seyfarth attorney.





By Kristina M. Launey with Christine Hendrickson

Seyfarth Synopsis.  Responding to inquiries regarding your company’s stance on pay equity can be dicey.  Having a strategy on how you address questions is important. 

Every time a client asks “what do I say” in response to employee inquiries about what the client’s company is doing to ensure fair pay, Justin Bieber’s song “What do you Mean” starts playing in my head as “What do I Say.” Luckily, while I am certainly not a Belieber, I find the song catchy rather than annoying, and appropriately thought-provoking.

It is a tricky question. I don’t think any company – at least not any of our clients (!) – would argue with the importance of treating all employees equally and paying them fairly.  But when an employee, or group of employees, ask pointed questions such as:

  • Has the company analyzed pay equity amongst employees or different genders (or any other protected group)?
  • If not, is there a plan to do so?
  • If so, can the results be shared?
  • Do we have any information on what other companies in our industry are doing on this front?

What do you say? This may be top of mind on the heels of Tuesday’s Equal Pay Day heightened publicity on these issues.  Perhaps your employee has seen one of the many articles on the issue, or read about the companies like that are taking very public positions on the topic (for example, here, here, and here). Or heard about the Pax Ellevate’s comment letter to the SEC requesting that publicly traded companies disclose “gender pay ratios” on an annual basis to their investors.  What if that is not your company’s style?  Or what if you are still getting your bearings about you with all the recent (and ongoing) changes in pay equity laws, and are not ready to make any pronouncements?  Or, what if you did an analysis but it was privileged?  What do you say?

Ultimately, this is something that depends heavily on your company structure and culture. But at its foundation – despite all the specific pay equity laws and regulations, new and old – pay inequality is a discrimination issue.  Reference to a company’s EEO and nondiscrimination policies and principles is an important start.  And letting the employees know the company is committed to treating all employees – regardless of gender, race, or any other status – fairly in all aspects of their employment, including benefits and pay.

Then it gets more complicated. Many factors are considered in making compensation decisions. It is therefore important to ensure that any pronouncement about the factors your organization considers in compensation decisions is not so targeted that it excludes factors that may be important to some but not all employees.  For example, certifications for IT professionals within your organization are likely to impact compensation for those employees, but being an Oracle Certified Master is unlikely to impact the pay of a welder within your organization.  Also, pay equity is a fragile concept – changes to pay can occur on an annual or often more frequent basis – so making a blanket statement that pay is fair for all employees can be risky because a few hires who are paid higher (or lower) than their peers can result in significant results that were not there even a month (or even a few days) earlier.

The law is moving quickly in this area. The way companies assess fair pay now and on a going-forward basis is changing due to recent changes in laws. Many companies are working quickly to perform assessments using new statutory frameworks and ensure pay practices and documentation line up with those laws going forward, and that all employees with any responsibility for pay decisions are appropriately trained.  Finally, and potentially most importantly, for companies that are conducting pay equity analyses – and as we’ve previously indicated (also here and here and here, and here . . . we won’t go on), conducting a proactive pay equity analysis is often the first and best step employers can take to ensure fair pay and diminish legal risk – privilege issues should also be a big consideration.  Speaking publicly about the results of an attorney-client privileged pay equity analysis may put those results at risk of disclosure.

Whether and what to communicate to employees or publicly about these processes and assessments is a decision that each company must make. But, remember that even California law – touted as the strictest in the country – does not require companies to disclose pay information (they just can’t prohibit employees from disclosing or discussing pay amongst themselves).

If there’s any solace, perhaps it’s that you are not alone in wondering “what do I say.” There is no one “right” answer.  There is no one-size fits all response, though we would caution you to carefully consider your company’s pronouncement so it does not unintentionally end up in the “no good deed goes unpunished” category.

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Seyfarth’s Pay Equity Group leads the legal industry in fair pay analysis, thought leadership and client advocacy. For over twenty years, we have partnered with our clients to proactively address these developments, and minimize risk. Seyfarth also recently testified before the Equal Employment Opportunity Commission on behalf of the U.S. Chamber of Commerce, requesting the EEOC withdraw its proposal to require employers report data on compensation and diversity through the EEO-1 report.  For questions, contact the authors, Kristina Launey, Annette Tyman, Christine Hendrickson, or your Seyfarth attorney with whom you regularly work.

By Ada W. Dolph, Adam R. Young, and Craig B. Simonsen

The Securities and Exchange Commission’s (SEC) Office of the Whistleblower (Office) recently released its 2015 Annual Report on the Dodd-Frank Whistleblower Program (Report) (November 16, 2015).

In Fiscal Year 2015 alone, the Commission paid more than $37 million to reward eight whistleblowers for their provision of original information that led to successful Commission enforcement actions with monetary sanctions totaling over $1 million; one whistleblower received over $30 million in a single award.  This flurry of awards followed the Commission’s active Fiscal Year 2014, in which the Commission authorized fourteen whistleblower awards and paid nine.  The Commission also registered a record year by issuing Final Orders or Preliminary Determinations on over 150 whistleblower award claims.

The Commission received 3,923 whistleblower tips, a 10% increase over Fiscal Year 2014 and nearly a 30% increase over the number of tips received in Fiscal Year 2012, the first year for which there is a full-year of data. The Commission received tips from all 50 states and 95 foreign countries. The most common complaint categories reported by whistleblowers included Corporate Disclosures and Financials (17.5%), Offering Fraud (15 6%), and Manipulation (12.3%).  In relative terms, the Commission reported the largest increases in Unregistered Offerings (150, up from 102) Trading and Pricing (213, up from 144) and Market Event (192, up from 139).  The Commission reports that it is currently tracking over 700 matters in which a whistleblower’s tip has caused an investigation to be opened or which have been forwarded to enforcement staff.

Notably, the Report also indicated that “to date, almost half of the award recipients were current or former employees of the company on which they reported information of wrongdoing.”  Approximately 80% of those individuals raised their concerns internally to their supervisors or compliance personnel, or understood that their supervisors or compliance personnel knew of the violations, before reporting information to the Commission.

The Report highlighted the Commission’s August 4, 2015 guidance clarifying the interaction of the anti-retaliation provisions and the award provisions of the Whistleblower Rules (17 C.F.R § 241) with respect to internal reporting under Dodd-Frank.  Though not universally accepted by the federal courts, the Commission has taken the position that whistleblowers who make only internal reports have engaged in protected activity under Dodd-Frank’s anti-retaliation provisions. (See our blog on this issue here).

The Report noted several ground-breaking 2015 decisions, including:

  • An April 28, 2015 award in which the Commission provided a maximum whistleblower award in its first anti-retaliation case (In the Matter of Paradigm Capital Management, Inc. and Candace King Weir, File No. 3-15930 (June 16, 2014));
  • An April 22, 2015 award of more than one million dollars to a compliance professional. This award was the first under the “substantial injury” exception, which permits awards for a compliance professional’s reports on conduct which the professional had a reasonable basis to believe would “cause substantial injury to the financial interest or property of the entity or investors” (Order Determining Award Claim, Exchange Act Rel. No. 74781, File No. 2015-2 (Apr. 22, 2015));
  • An March 2, 2015 award of over $500,000 to a company officer. This award was the first awarded under an exception permitting awards to an officer who reports information to the Commission more than 120 days after other responsible compliance personnel possessed the information and failed to address the issue adequately. (Order Determining Award Claim, Exchange Act Rel. No. 744404, File No. 2015-1 (Mar. 2, 2015)).

The Report also highlighted the Commission’s 2015 focus on employers’ use of confidentiality, severance, and other kinds of agreements to, in its view, interfere the ability of individuals to report potential wrongdoing to the SEC.  From the report, it is clear that assessing confidentiality agreements for compliance with Rule 21F-17(a) will continue to be a top priority for OWB into Fiscal Year 2016.

Employers should take note and revise their form severance agreements accordingly. For more information on the efforts of the Commission in these areas, also see our previous article,  “Aggressive Enforcement Efforts Will Continue After KBR, Per SEC Whistleblower Chief.”

Ada W. Dolph is a partner in Seyfarth’s Chicago office and Team Co-Lead of the National Whistleblower Team. Adam R. Young is an associate in the firm’s Chicago office and a member of the National Whistleblower team. Craig B. Simonsen is a senior litigation paralegal in the firm’s Chicago Office. If you would like further information on this topic, please contact a member of the Whistleblower Team, your Seyfarth attorney, Ada W. Dolph at, Adam R. Young at or Craig B. Simonsen at

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