When is a Whistleblower Not a Whistleblower?

by Littler
Contact

Even though Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act more than three years ago, the basic question of who can claim the anti-retaliation protections of that law are less clear than ever.  On one hand, the Securities and Exchange Commission (SEC) and a growing list of federal district courts have held that a person who makes internal complaints of fraud or securities laws violations within their company can bring a Dodd-Frank action.  On the other hand, a federal circuit court of appeals and several lower courts have recently ruled that only one who provides information to the SEC can reap the protections of the Dodd-Frank anti-retaliation provisions.  How this split will resolve remains to be seen.

The disagreement is a matter of statutory interpretation.  The express definition provided under the statute states that a "whistleblower" is limited only to persons who provide information to the SEC.1 Another part of the law, however, makes it illegal to retaliate against someone for raising complaints about violations of the Sarbanes-Oxley Act, Dodd-Frank or other securities laws to anyone, not just the SEC.2 In short, the question is this: does a person need to disclose information to the SEC?  Or just complain internally?3

The SEC has favored the broader interpretation.  Its regulations state that individuals do not need to submit information to the agency; rather, any employee who makes internal complaints can bring a claim under Dodd-Frank.4  In the first few years after the law was enacted, five district courts followed this interpretation.5 For instance, in Murray v. UBS Securities, LLC, the plaintiff complained internally to his superiors that he was being pressured to change research reports to favor UBS's products and trading positions.6 UBS moved to dismiss the plaintiff's Dodd-Frank allegations, because he had not brought any complaints to the SEC.  The court denied this motion, finding that because the internal complaints were protected by Sarbanes-Oxley, they also fell within Dodd-Frank's anti-retaliatory scheme. 

In July 2013, the U.S. Court of Appeals for the Fifth Circuit bucked this trend and reached the opposite conclusion in Asadi v. G.E. Energy United States, LLC.7 In Asadi, the plaintiff claimed his employer terminated him for reporting violations of the Foreign Corrupt Practices Act to his supervisor and the G.E. ombudsman (though admittedly not to the SEC).  The court of appeals affirmed the district court's dismissal, finding that it need look no further than the plain language of the statute, which defines a "whistleblower" to include only individuals who report information to the SEC.  The court reasoned that the other section of the statute applied only to the types of protected activity afforded to a "whistleblower." In other words, "individuals may take protected activity yet still not qualify as a whistleblower" under that law if they do not provide information to the SEC. 

In the few months since Asadi was decided, federal district courts in California and Colorado have followed the Fifth Circuit's lead and dismissed Dodd-Frank claims based on internal reporting of alleged fraud.8 However, a federal district court in Massachusetts recently rejected Asadi, instead adopting the SEC's approach.9 Even more recently, another judge in New York also refused to apply Asadi and favored the broad approach espoused by the SEC.10

Interestingly, two federal district court judges in Colorado have reached opposite conclusions on this issue: one sided with the SEC, while another followed Asadi just a few months later.11 Both cases are currently on appeal before the Tenth Circuit.  It is far too early to tell whether the Tenth Circuit will side with the SEC or the Fifth Circuit.  We will provide further updates of this rapidly developing area of the law as further decisions issue.


 1 15 U.S.C. § 78u-6(a)(6).

2 15 U.S.C. § 78-u6(h)(1)(A)(iii).

3 Note that Dodd-Frank provides a generous bounty to whistleblowers who provide original information that leads to the recovery of monetary sanctions of $1,000,000 or more, equal to 10 to 30 percent of any monetary sanctions actually collected by the SEC. See 15 U.S.C. § 78u-6(b); 17 C.F.R. § 240.21F-3. For this, the statute is clear: the only "whistleblowers" entitled to receive this payment are individuals who disclose original information to the SEC, not internal whistleblowers. 

4 17 C.F.R. § 240.21F-2.

5 See Genberg v. Porter, 2013 U.S. Dist. LEXIS 41302 (D. Colo. Mar. 25, 2013); Murray v. UBS Securities, LLC,  2013 U.S. Dist. LEXIS 71945 (S.D.N.Y. May 21, 2013); Kramer v. Trans-lux Corp., 2012 U.S. Dist. LEXIS 136939 (D. Conn. Sept. 25, 2012); Nollner v. S. Baptist Convention, Inc., 852 F. Supp. 2d 986, 993-95 (M.D. Tenn. 2012); Egan v. Tradingscreen, Inc., 2011 U.S. Dist. LEXIS 47713 (S.D.N.Y. May 4, 2011).

6  2013 U.S. Dist. LEXIS 71945 (S.D.N.Y. May 21, 2013).

7 720 F.3d 620 (5th Cir. 2013).

8 Banko v. Apple Inc., 2013 U.S. Dist. LEXIS 149686 (N.D. Cal. Sept. 26, 2013); Wagner v. Bank of Am. Corp., 2013 U.S. Dist. LEXIS 101297 (D. Colo. July 19, 2013).

9 Ellington v. Giacoumakis, 2013 U.S. Dist. LEXIS 148939 (D. Mass. Oct. 16, 2013).

10 Rosenblum v. Thomson Reuters Mkts. LLC, 2013 U.S. Dist. LEXIS 153635 (S.D.N.Y. Oct. 25, 2013).

11 Genberg v. Porter, 2013 U.S. Dist. LEXIS 41302 (D. Colo. Mar. 25, 2013); Wagner v. Bank of Am. Corp., 2013 U.S. Dist. LEXIS 101297 (D. Colo. July 19, 2013).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Littler | Attorney Advertising

Written by:

Littler
Contact
more
less

Littler on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!