Whistle-Blowers Need Not First Approach SEC To Be Protected, Commission Reiterates

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By Yin Wilczek

Feb. 9 — In a Feb. 6 amicus filing, the Securities and Exchange Commission reiterated its position that a whistle-blower doesn't have to report potential misconduct to the agency to be protected under Dodd-Frank's anti-retaliation provisions.

In the filing, the commission told the U.S. Court of Appeals for the Second Circuit that the anti-retaliation protections extend to anyone who engages in whistle-blowing under SEC rules “irrespective of whether the individual makes a separate report to the Commission.”

“The Commission's final rules were carefully calibrated to achieve this objective by providing ‘strong incentives' for individuals in appropriate circumstances to report internally in the first instance,” the SEC said.

Courts Divided 

One of the most contentious issues under the whistle-blower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act is whether informants must first tip off the SEC before they qualify for anti-retaliation protection. The question has divided the federal district courts and even judges within the U.S. District Court for the Southern District of New York.

The U.S. Court of Appeals for the Fifth Circuit thus far is the only federal appeals court to rule on the issue. It concluded in July 2013 that a former G.E. Energy (USA) LLC employee couldn't sue his employer under Dodd-Frank's anti-retaliation provisions because he did not first approach the SEC with his suspicions.

In the wake of the Fifth Circuit decision, the SEC has been trying to clarify its position at the appellate level. The commission previously communicated its stance to the Second Circuit in early 2014, in a case involving a former Siemens AG employee who alleged he was unlawfully fired for reporting possible Foreign Corrupt Practices Act violations at the company's China subsidiary.

However, the Second Circuit sidestepped the issue and decided the case on extraterritorial grounds.

More recently, the SEC told the U.S. Court of Appeals for the Third Circuit in December that a prior report to the commission is not required for the anti-retaliation provisions to apply.

Internal Report 

In the case at issue, Daniel Berman alleged 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. Although he later filed a Form TCR with the SEC and cooperated with investigators, Berman didn't report his concerns to the agency before the defendants took the allegedly retaliatory action.

Judge Gregory Woods from the Southern District of New York dismissed Berman's retaliation lawsuit against his employer. Woods concluded, based on Asadi, that Berman did not qualify as a whistle-blower under Dodd-Frank. 

Judges in the same district have reached the opposite conclusion.

To contact the reporter on this story: Yin Wilczek in Washington at ywilczek@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

The SEC's amicus filing is available at http://www.bloomberglaw.com/public/document/Berman_v_NeoOgilvy_LLC_Docket_No_1404626_2d_Cir_Dec_16_2014_Court.


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