SEC brief: Whistleblower law covers ex-Vanguard lawyer
The Securities and Exchange Commission has filed a "friend of the court" motion arguing that David Danon, the former Vanguard Group tax lawyer who says he was fired for complaining about billions of dollars of federal and state income-tax underpayments by the Malvern-based mutual-fund giant, is entitled to whistleblower protection under the Securities Exchange Act of 1934 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
The Securities and Exchange Commission has filed a "friend of the court" motion arguing that David Danon, the former Vanguard Group tax lawyer who says he was fired for complaining about billions of dollars of federal and state income-tax underpayments by the Malvern-based mutual-fund giant, is entitled to whistleblower protection under the Securities Exchange Act of 1934 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
In opposing a federal wrongful-termination lawsuit Danon filed last year, Vanguard had argued that federal whistleblower law "protects only individuals who have reported a potential securities law violation directly to the SEC before they were fired," the SEC noted.
But that's wrong, the SEC added in a memo and 73-page brief to U.S. District Judge C. Darnell Jones: A rule the SEC implemented after Dodd-Frank "authorizes the commission to apply monetary awards to individuals who voluntarily provide information that leads to a successful enforcement action, and prohibits employers from retaliating" against whistleblowers.
The SEC said whistleblowers are now protected against retaliation when "making a report of a potential securities law violation to a supervisor," even if the whistleblower doesn't also go to the SEC. Danon says he was punished for reporting Vanguard's illegal tax practices to his superiors.
The company has said Danon was properly fired in 2013 for not doing his job. "Mr. Danon's wrongful termination claim has no basis," said Vanguard spokesman John Woerth. He said the SEC was not taking a position on "underlying tax issues" disputed by Danon and Vanguard.
The SEC said its rule "helps protect individuals who choose to report potential violations internally." It added that allowing Vanguard to have Danon's case thrown out because he had not gone straight to the SEC would "substantially weaken" the commission's ability to use whistleblower evidence against corporate wrongdoing. In a footnote, the SEC said it "does not take a position" on Danon's complaint or other steps Vanguard may take to get it dismissed.
Last year, Danon collected an informer's fee of $117,000 for helping Texas collect back taxes from Vanguard. He also alleged illegal Vanguard tax avoidance to the Internal Revenue Service and to New York, California, and other states, and that Vanguard underpaid its management's own affiliate to reduce its income-tax obligations while building up an illegal cash reserve without paying taxes or crediting it to Vanguard's own fund investors.
Vanguard has said its financial arrangements are legal.
"It's about time that Danon and other whistleblowers get the affirmative support that they need," said Mark Schwartz, a Bryn Mawr lawyer whose practice includes defending whistleblowers. He is not involved in Danon's case.
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