Mixed Results for Ex-SEC Lawyer, Agency in Whistleblower Suit

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By Phyllis Diamond

The SEC, which rewards whistleblowers who report securities law violations, won’t be paying any bounties to ex-employee Rory Flynn, who claimed he was terminated for complaining the agency was violating its own rules governing the handling of administrative appeals.

Flynn, who formerly worked as a lawyer in the Securities and Exchange Commission’s Office of the General Counsel, Dec. 7 won a second chance to convince a Merit Systems Protection Board administrative judge that his boss fired him for blowing the whistle on the office’s violations of two procedural regulations.

The judge “never actually addressed” Flynn’s claims under one of the rules, the U.S. Court of Appeals for the Fourth Circuit said, remanding. However, the the judge fully considered—and properly rejected—Flynn’s claims based on the other rule for failure to make a protected disclosure, Judge James Wynn Jr. said.

The MSPB official “more than adequately explained” why an employee in Flynn’s position couldn’t have reasonably concluded the rule was violated, the appeals court said.

“The issues in the case are programmatically significant,” Flynn told Bloomberg Law. The SEC didn’t respond to an emailed request for comment.

Alleged Rule Violations

During his stint in the OGC’s adjudications section, Flynn told a number of individuals—including then-Chairman Elisse Walter—of his concern the unit wasn’t resolving appeals within timelines set out in SEC Rule 900(a) or obtaining commission approval for extensions. He also complained that the unit was regularly violating Rule 900(b), which requires the OGC to report to the commission whenever an appeal isn’t resolved within those timelines.

In May 2013, Flynn was fired by his supervisor Michael Conley, ostensibly for his poor work performance and inability to work cooperatively with senior managers. Flynn filed a claim with the MSPB, where an administrative judge concluded that he didn’t make any protected disclosures and declined to take corrective action.

The Fourth Circuit affirmed in part. It said that under the Whistleblower Protection Enhancement Act, a federal agency can’t take personnel action based on an employee’s disclosure of information he or she reasonably believes demonstrates a rule violation. An employee in Flynn’s position couldn’t reasonably conclude that the commission violated Rule 900(a), the plain language of which indicates that it is “aspirational and discretionary” and doesn’t create “mandatory deadlines,” the appeals court said.

Flynn also claimed he made protected disclosures when he raised concerns that the unit violated Rule 900(b) because the reports it filed didn’t provide enough detail to satisfy the rule’s requirements. “We do not believe the Administrative Judge actually analyzed this claim, which leaves the opinion below lacking, even under our deferential standard of review,” the appeals court said. It remanded for the MSPB to develop the record more fully.

The case is Flynn v. SEC , 2017 BL 437851, 4th Cir., No. 16-2122, 12/7/17 .

To contact the reporter on this story: Phyllis Diamond in Washington at pdiamond@bloomberglaw.com

To contact the editor responsible for this story: Seth Stern at sstern@bloomberglaw.com

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