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).