Further Adding to Split, Wisconsin Court Says SEC Report Needed for Whistle-Blower Status

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A corporate executive who claimed he was fired after complaining to the board about securities law violations failed to state a claim under the Dodd-Frank Wall Street Reform and Consumer Protection Act's whistle-blower anti-retaliation provisions, the U.S. District Court for the Eastern District of Wisconsin concluded Nov. 4.

Because the plaintiff didn't first report his concerns to the Securities and Exchange Commission, he wasn't a “whistle-blower” for Dodd-Frank act purposes, Judge William Griesbach held.

The decision adds to a blurry legal landscape on this point; district courts have split as to whether a Dodd-Frank whistle-blower must report directly to the SEC. The U.S. District Court for the Northern District of California just last week reached the opposite conclusion, taking the “majority view”.

The only appellate court to rule on the matter, the U.S. Court of Appeals for the Fifth Circuit, has concluded that direct reporting is necessary. For its part, the SEC has taken the opposite position.

No Ambiguity

The instant court recapped that Dodd-Frank defines a whistle-blower “as `any individual who provides … information relating to a violation of the securities laws to the Commission.'” The Act's anti-retaliation provision states that an employer can't take adverse action against a whistle-blower for:

• providing information to the SEC;

• aiding the commission in a related investigation or action; or

• making disclosures required by the Sarbanes-Oxley Act.

According to the court, the alleged ambiguity in the statute arises from the SEC's comments in its whistle-blower regulation that the third category includes individuals who report to persons or authorities other than the commission.

However, the court said, “[t]here is no ambiguity in the statute at all.”

“No term or phrase in the statute is actually ambiguous. Instead,” it wrote, “courts perceiving ambiguity appear flummoxed by the simple fact that the protections in the statute extend to activity beyond the activity that qualifies an employee for protection.”

The decision is available at http://www.bloomberglaw.com/public/document/Verfuerth_v_Orion_Energy_Systems_Inc_Docket_No_114cv00352_ED_Wis_.