As discussed in a prior post on this blog, there is a spit of authority about whether the whistleblower protection provision of the Dodd-Frank Act protects internal disclosures. Last summer, the Fifth Circuit held in Asadi v. G.E. Energy that Dodd-Frank Act protected conduct is limited to disclosures to the SEC. Most of the district courts addressing this issue, however, have held that internal disclosures are protected under Dodd-Frank’s whistleblower protection provision.
On March 11, 2014, a New Jersey district judge held in Khazin v. TD Ameritrade Holding that internal reporting of potential securities law violations is protected whistleblowing under the Dodd-Frank Act’s anti-retaliation provision. The holding rests largely on the SEC’s final rule implementing the Dodd-Frank Act whistleblower reward provision, which defines protected whistleblowing to include individuals who report potential violations to a supervisory authority and not to the SEC itself (citing 17 C.F.R. § 240.21F-2(b)(1); SEC Securities Whistleblower Incentives and Protections, 76 Fed. Reg. 34300-01).
Khazin acknowledges the Fifth Circuit’s decision in Asadi holding that Dodd-Frank Act whistleblower protection applies exclusively to individuals who have reported information to the SEC, but also notes that most of the decisions construing the Dodd-Frank Act’s whistleblower provision have held that it protects internal whistleblowing:
On the other hand, most district courts addressing this issue have concluded that the Dodd-Frank Act’s whistleblower provision is ambiguous on its face and they have relied on the SEC’s final rule for guidance. See e.g., Ellington v. Giacoumakis, No. 13-11791, 2013 WL 5631046, at *3 (D. Mass. Oct. 16, 2013) (relying on SEC’s comments to the Dodd-Frank Act in holding that “Congress intended that an employee terminated for reporting Sarbanes-Oxley violations to a supervisor or an outside compliance officer, and ultimately to the SEC, have a private right of action under Dodd-Frank whether or not the employer wins the race to the SEC’s door with a termination notice”); Murray v. UBS Sec., LLC, No. 12-5914, 2013 WL 2190084, at *4 (S.D.N.Y. May 21, 2013) (giving deference to the SEC’s interpretation of the rule and holding that the anti-retaliation whistleblower provisions apply to individuals who report information to the SEC or provide disclosures that fall under § 78u-6(h)(1)(A)(iii)). At least six district courts have construed the term “whistleblower” broadly and concluded that the Dodd-Frank anti-retaliation protections extend to individuals protected under the Sarbanes-Oxley Act regardless of whether disclosures were made to the SEC itself. See Ellington, 2013 WL 5631046 at *3; Murray, 2013 WL 2190084, at *7.
Recently, the SEC filed an amicus brief advocating broad construction of SOX protected conduct in a case on appeal to the Second Circuit. If a circuit split emerges, the issue may warrant Supreme Court review.