SEC Clarifies DF Whistle-Blower Protections

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By Yin Wilczek

Aug. 5 — The Securities and Exchange Commission Aug. 4 issued an interpretive release clarifying that whistle-blowers need not initially report to the commission to qualify for protection under Dodd-Frank's anti-retaliation provisions.

Specifically, the commission explained that the rules governing its bounty program—1934 Securities Exchange Act Rules 21F-9(a) and 21F-9(b)(1)—which courts have criticized as inconsistent, apply in different circumstances.

“Under our interpretation, an individual who reports internally and suffers employment retaliation will be no less protected than an individual who comes immediately to the Commission,” the SEC said. “Providing equivalent employment retaliation protection for both situations removes a potentially serious disincentive to internal reporting by employees in appropriate circumstances.”

The interpretation is effective upon publication in the Federal Register.

Helpful to Informants 

Whistle-blower attorneys told Bloomberg BNA that while the release doesn't add much to the governing law and rules, it will bolster the arguments for whistle-blowers embroiled in anti-retaliation litigation with their employers.

“It's a net positive everywhere,” but will have “greater impact in circuits where the law in this area has not been developed,” said Jordan Thomas, a New York-based partner at Labaton Sucharow LLP.

Thomas added that even in the jurisdiction of the U.S. Court of Appeals for the Fifth Circuit—the only federal appellate court that has ruled on the matter—whistle-blowers and their counsel can augment their position with the release. “If whistle-blowers and their counsel can differentiate the decision that was made in the Fifth Circuit with their case, in part by using some of the arguments that the commission made that may not have been made in the prior litigation, they have a better chance today than they did before the guidance was issued.”

David Marshall, a partner at Katz, Marshall & Banks LLP in Washington, also said the guidance will give courts a stronger basis for deferring to the SEC's interpretation. “It certainly adds a lot of credibility and wind in the sails for those of us who say that internal reporting is protected.”

Courts Divided.

The scope of the Dodd-Frank Wall Street Reform and Consumer Protection Act's anti-retaliation provisions has long divided the federal district courts and even judges within the Southern District of New York.

The Fifth Circuit took the opposite stance from the SEC in July 2013, when it concluded that a former G.E. Energy (USA) LLC employee, Khaled Asadi, couldn't sue his employer under the provisions because he did not first approach the SEC.

The SEC, for its part, has explained its long-held position in several amicus filings, including one to the U.S. Court of Appeals for the Second Circuit in Berman v. Neo@Ogilvy LLC.

In that case, plaintiff Daniel Berman alleged that he was fired after telling his supervisors about a number of transactions he believed were intended to make the company look more profitable than it was. According to court documents, Berman didn't report his concerns to the SEC before the defendants took the allegedly retaliatory action.

The SEC Aug. 5 informed the Berman court about its interpretive release, adding that its interpretation should be considered “controlling.”

Employer Arguments 

In the meantime, companies fending off whistle-blower anti-retaliation lawsuits continue to argue that the actions should be dismissed because the informant was not an eligible whistle-blower under Dodd-Frank.

In a recent example, Bio-Rad Laboratories Inc. July 28 told the U.S. District Court for the Northern District of California that an anti-retaliation lawsuit filed by its former general counsel, Sanford Wadler, should be dismissed because “the plain language of Dodd-Frank says that only those who have provided information ‘to the Commission' are a statutory whistleblower who may bring suit for retaliation”.

One judge from the Northern District of California previously ruled that SEC reporting is required for Dodd–Frank protection (Banko v. Apple Inc., N.D. Cal., No. 13-cv-02977, 9/27/13).

An attorney representing Bio-Rad did not immediately respond to a request for comment.

Corporate Action?

Bryan House, a Milwaukee-based partner at Foley & Lardner LLP who defends companies in securities litigation, told BBNA that employers don't necessarily have to change their practices as a result of the commission's interpretive release.

“I don’t know that the release really adds much to the discussion; this interpretation is certainly less authoritative than the rules themselves, which were approved after notice and comment,” House said. “It certainly will be interesting to see what the Second Circuit decides.”

Nonetheless, organizations ignore the interpretation at their own peril, Marshall suggested. “The SEC is taking a clear stand that it will protect whistle-blowers who report internally, and it is also making clear that such protection is a key component of enforcement of U.S. securities laws.”

To contact the reporter on this story: Yin Wilczek in Washington at

To contact the editor responsible for this story: Ryan Tuck at

The interpretive rule is available at

The SEC letter is available at


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