March 12 -- A federal district court March 11 extended whistle-blower anti-retaliation protections to a brokerage firm employee who reported alleged misconduct internally but did not report it to federal regulators until after his dismissal (Khazin v. TD Ameritrade Holding Corp., D.N.J., No. 13-cv-04149, 3/11/14).
The court looked to Securities and Exchange Commission's rules that extend whistle-blower protection even if the SEC is not notified.
Plaintiff Boris Khazin sued TD Ameritrade in the U.S. District Court for the District of New Jersey, claiming that the company violated the Dodd-Frank Wall Street Reform and Consumer Protection Act by wrongfully terminating him for complaining to management about alleged securities law violations.
Specifically, Khazin was an investment oversight officer for Amerivest Investment Management Co., part of TD Ameritrade, and reported to a supervisor that one of Amerivest's offerings “was not in compliance with relevant securities regulations,” Judge Susan D. Wigenton said.
The supervisor, Lule Demmissie, told Khazin not to make corrective changes and Khazin was fired after pressing the issue further, according to his complaint. After being fired, he reported the incident to the SEC and filed this lawsuit.
The defendants moved to dismiss, saying that Khazin was not a whistle-blower under Dodd-Frank because “he did not report the alleged securities violations to the SEC before being terminated,” the court said.
Finding the statutory language itself ambiguous, the court looked to the SEC's relevant final rule to interpret the law. Under that rule, it noted, “the Dodd-Frank Act's anti-retaliation protection would include individuals who report potential violations to a supervisory authority and not to the SEC itself.”
Accordingly, the court held, “internal reporting of potential violations is sufficient to qualify as a whistle-blower under the Dodd-Frank Act's anti-retaliation provision.”
The court acknowledged a split in federal case law over the scope of Dodd-Frank's whistle-blower protections. The U.S. Court of Appeals for the Fifth Circuit, the court in this case recapped, held in Asadi v. G.E. Energy that the law requires individuals to report to the SEC in order to qualify for anti-retaliation protection (Asadi v. G.E. Energy (USA), LLC, 5th Cir., No. 12-20522, 7/17/13). A handful of federal trial courts, including the District of Colorado (Wagner v. Bank of America Corp., D. Colo., No. 12-cv-00381, 7/19/13) and the Northern District of California (Banko v. Apple Inc., N.D. Cal., No. 13-cv-02977, 9/27/13), have reached similar conclusions, the court said.
More district courts, however, have held that the whistle-blower provision is facially ambiguous and, like the court here, looked to the SEC's rules for guidance. These courts include the District of Massachusetts and Southern District of New York.
Other district courts have also applied the protections broadly, even extending Dodd-Frank anti-retaliation provisions to whistle-blowers as defined by the Sarbanes-Oxley Act, regardless of whether the individual went to the SEC.
Although the court here concluded that the plaintiff's qualified as a whistle-blower under Dodd-Frank, it dismissed the case and sent it to an arbitrator because of a pre-dispute arbitration agreement Khazin had signed with TD Ameritrade. That agreement predated Dodd-Frank's enactment, the court held, and the statute did not apply retroactively to bar its enforcement.
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To see the court's opinion, visit http://www.bloomberglaw.com/public/document/KHAZIN_v_TD_AMERITRADE_HOLDING_CORPORATION_et_al_Docket_No_213cv0.
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