Who is a Whistleblower Under Dodd-Frank? Courts Disagree.

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The Dodd-Frank Wall Street Reform and Consumer Protection Act protects employees who blow the whistle on possible securities law violations.  But the question of who qualifies as a whistleblower continues to divide courts, as illustrated by two recent cases.

In Englehart v. Career Education Corp., Case 8:14-cv-444-T-33EAJ (M.D. Fla., May 12, 2014), the plaintiff, an employee of publicly traded Career Education Corp. ("CEC"), alleged that she was terminated because she voiced concerns internally at CEC regarding proposed budgets and forecasts that misrepresented student enrollment numbers and placements.

In Bussing v. COR Clearing, LLC, Case No. 8:12-cv-238 (D. Neb., May 21, 2014), the plaintiff alleged that she was terminated from Legent Clearing, LLC (a subsidiary of COR Clearing, LLC) after issuing an internal report on Legent's violations of the Bank Secrecy Act, anti-money laundering laws, and deficits in record-keeping, and participating in an investigation of Legent by the Financial Industry Regulatory Authority ("FINRA").

Neither Englehart nor Bussing provided any information to the Securities and Exchange Commission ("SEC").  So were they whistleblowers under Dodd-Frank?

The statute does not provide a clear answer because of a tension between Dodd-Frank's retaliation provision and the Act's definition of "whistleblower."  The statute prohibits retaliation against whistleblowers for: (i) providing information to the SEC, (ii) participating in an SEC investigation, or (iii) "making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.), this chapter, …. and any other law, rule, or regulation subject to the jurisdiction of the [SEC]."  Read alone, subsection (iii) appears to protect an employee who discloses financial improprieties internally, without reporting them to the SEC, as long as they are disclosures required by a law or rule subject to the jurisdiction of the SEC.  On the other hand, Dodd-Frank only protects whistleblowers, and the Act separately defines "whistleblower" as "any individual …. who provides information relating to a violation of this Act to the [SEC], in a manner established by rule or regulation by the [SEC]."  Under this definition, one seemingly cannot be a whistleblower without providing information to the SEC.

The Englehart court, citing the Fifth Circuit Court of Appeals' decision in Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620 (5th Cir. 2013), dismissed the plaintiff's claim, holding that the statutory definition of whistleblower was controlling and that the plaintiff was not protected under Dodd-Frank.  In Bussing, in contrast, the court concluded that the plaintiff's allegations stated a claim for whistleblowing.  The court reasoned that if "whistleblower" means only what the "narrow" definition states, then "subsection (iii) serves no significant purpose, and its aim of broadly protecting whistleblowers is stifled."  According to Bussing, "whistleblower" must also be accorded a broader, "ordinary" meaning to give effect to subsection (iii).

A consensus has yet to emerge on the question of who is a whistleblower under Dodd-Frank.  An amendment to the statute, or a decision by the United States Supreme Court, may be required to resolve this issue.

Topics:  Bank Secrecy Act, Bussing, Dodd-Frank, Englehart, Retaliation, SEC, Whistleblowers

Published In: Civil Procedure Updates, Civil Rights Updates, Finance & Banking Updates, Labor & Employment Updates, Securities Updates

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.

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