Securities Law Daily provides daily coverage of developments in the regulation of federal, state, and international securities and futures trading, with objective coverage of the...
By Phyllis Diamond
Dec. 9 — Morgan Stanley Smith Barney LLC won dismissal of whistle-blower anti-retaliation claims by a former financial adviser who alleged he was fired for telling the FBI about criminal activity by the firm and clients in the run-up to the financial crisis.
Even though plaintiff John Verble said he told the FBI about securities-law violations, he didn't report his concerns to the Securities and Exchange Commission until after he was fired, the U.S. District Court for the Eastern District of Tennessee found Dec. 8. As such, he wasn't a “whistle-blower” for purposes of the Dodd-Frank Act's anti-retaliation protections.
According to Chief Judge Thomas A. Varlan, the plain text of the statute clearly requires that to qualify as a whistle-blower, an individual must provide information to the agency. The court added that because the statute isn't ambiguous, it need not defer to the SEC interpretive rule providing otherwise.
Federal appeals courts—and some district courts—are divided on whether so-called reporting out is required to state a Dodd-Frank Act anti-retaliation claim. In 2013, the Fifth Circuit held that it is (141 Securities Law Daily, 7/23/13). More recently, a divided Second Circuit concluded that reporting to the SEC isn't required (176 SLD, 9/11/15).
Although the Second Circuit's decision set up a split among the circuits, the defendants in that case decided not to seek U.S. Supreme Court review (220 SLD, 11/16/15). The Sixth Circuit, home to the court in Verble's case, hasn't weighed in on the issue.
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