Whistle-Blowers Needn't Report to SEC, 2d Cir. Says

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By Rob Tricchinelli

Sept. 10 — A whistle-blower doesn’t have to report suspected corporate misconduct to the Securities and Exchange Commission in order to qualify for stronger anti-retaliation protections under the Dodd-Frank Act, a divided panel of the Second Circuit held Sept. 10.

The SEC has interpreted its own whistle-blower rules to not require reporting to the agency, and Judge Jon O. Newman of the U.S. Court of Appeals for the Second Circuit said that “the pertinent provisions of Dodd-Frank create a sufficient ambiguity to warrant our deference to the SEC’s interpretive rule.”

The Fifth Circuit came to an opposite conclusion in July 2013, meaning the Second Circuit's decision creates a circuit split that could lead to Supreme Court review.


Daniel Berman claimed he was fired from Neo@Ogilvy LLC after internally reporting what he believed to be fraud that violated generally accepted accounting principles, the Sarbanes-Oxley Act and the Dodd-Frank Act.

His anti-retaliation suit against the company was referred by a magistrate judge to Judge Gregory Woods of the U.S. District Court for the Southern District of New York, who dismissed it after concluding that the Dodd-Frank protections apply only to whistle-blowers who report to the SEC.

The Second Circuit's decision sends the case back to the district court for further proceedings.

“Since the action was filed, the Defendants have undertaken a legal defense strategy intended to gut the entirety of the Dodd-Frank whistle-blower protection statute,” Berman's attorneys, Bennet Susser, Richard S. Meisner and Alissa Pyrich, of Jardim, Meisner & Susser PC in Florham Park, N.J., said in a statement. “The Second Circuit decision gives teeth to the anti-retaliation provisions of Dodd-Frank.”

Attorneys for Neo@Ogilvy and its parent company, WPP Group USA Inc., didn't respond to a request for comment. The SEC declined to comment.


Section 21F of the 1934 Securities Exchange Act, as modified by Dodd-Frank, protects whistle-blowers from retaliation if they report information “to the Commission.” That part of the law also protects them from retaliation if they are “making disclosures that are required or protected under the Sarbanes-Oxley Act.”

The Second Circuit held that the Sarbanes-Oxley language created an ambiguity in the definition.

Finding no legislative history to clarify congressional intent regarding the ambiguity, the court deferred to the SEC's 2011 rule that administers its whistle-blower bounty program.

An agency interpretation of the rule, '34 Act Rule 21F-9(b)(1), says “an individual who reports internally and suffers employment retaliation will be no less protected than an individual who comes immediately to the Commission”.


The decision creates a circuit split. In July 2013, the U.S. Court of Appeals for the Fifth Circuit concluded that a whistle-blower couldn’t sue his employer for retaliation under Dodd-Frank because he didn’t go to the SEC first. That court also held that an expansive Dodd-Frank definition of a whistle-blower would make parts of Sarbanes-Oxley moot.

In dissent, Second Circuit Judge Dennis Jacobs said the majority and the SEC “altered a federal statute” and changed the Dodd-Frank definition of a whistle-blower. “The alteration creates a circuit split, and places us firmly on the wrong side of it,” he wrote. Judge Guido Calabresi also sat on the panel.

“This is in an issue that’s going to have to be decided by the Supreme Court,” Lloyd Chinn, a partner at Proskauer Rose LLP in New York, told Bloomberg BNA.

The differing decisions represent “a pretty classic debate about statutory interpretation,” Chinn, who is co-head of the firm's whistle-blower and retaliation group, added.

To contact the reporter on this story: Rob Tricchinelli in Washington at rtricchinelli@bna.com

To contact the editor responsible for this story: Susan Jenkins at sjenkins@bna.com

For the Second Circuit's opinion, visit http://www.bloomberglaw.com/public/document/Berman_v_NeoOgilvy_LLC_Docket_No_1404626_2d_Cir_Dec_16_2014_Court/3

To see the dissent, go to http://www.bloomberglaw.com/public/document/Berman_v_NeoOgilvy_LLC_Docket_No_1404626_2d_Cir_Dec_16_2014_Court/4


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