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Southern District of New York holds that a complaint to the SEC is not necessary for a whistleblower to be protected from retaliation

The Dodd-Frank Act (DFA) potentially makes it very lucrative for an employee to blow the whistle on their employer’s violations of the securities laws, if the Securities and Exchange Commission (SEC) recovers money on behalf of defrauded investors because of the whistleblower’s information. But the DFA’s protections against whistleblower retaliation are equally important – few whistleblowers would come forward if their jobs were not protected.

Unfortunately, the DFA is ambiguous on this point. The law defines a “whistleblower” as any individual who provides information relating to a violation of the securities laws to the SEC. 15 U.S.C. §78u-6(a)(6). However, a separate part of the DFA forbids an employer from retaliating against an employee for providing information to the SEC, for participating in an SEC action, or for “making disclosures that are required or protected under the Sarbanes-Oxley Act….” 15 U.S.C. § 78u-6(h)(1)(A). Sarbanes-Oxley, unlike the DFA, explicitly protects employees who provide information about securities law violations not just to the SEC, but to any Federal regulatory or law enforcement agency, or to a supervisor at the employer’s workplace. 18 U.S.C. § 1514A.

So, Dodd-Frank on the one hand limits its definition of “whistleblower” to those providing information to the SEC, and on the other hand protects from retaliation whistleblowers who report wrongdoing under the broader Sarbanes Oxley requirements. The SEC, in a regulation, adopted the broader view, and held that whistleblowers are protected under the DFA even if they report the wrongdoing to another agency, or internally with their employer. The Fifth Circuit Court of Appeals went against the SEC and held that the DFA’s definition of whistleblower controls, and so only whistleblowers who report wrongdoing to the SEC are protected by the DFA. Asadi v. G.E. Energy, 720 F.3d 620 (5th Cir. 2013).

Enter Judge Scheindlin. The plaintiff in Rosenblum v. Thomson Reuters, 13 Civ. 2219, complained about potential securities law violations to the FBI and to his supervisor, and was fired about a month later. Thomson Reuters moved to dismiss his lawsuit, pointing to the Asadi decision and arguing that he was not a whistleblower under Dodd Frank. Judge Scheindlin denied the motion and held that Rosenblum’s FBI and internal complaints protected him from retaliation under Dodd-Frank. Essentially, Judge Schindlin held that SEC was right and the Fifth Circuit was wrong.

Eventually, the Second Circuit will be asked to resolve this question, so stay tuned.