Image of SEC Amicus Brief Argues that Dodd-Frank Protects Internal Whistleblowing

SEC Amicus Brief Argues that Dodd-Frank Protects Internal Whistleblowing

Protections for SEC Whistleblowers Post-Digital Realty (11-6-2020)

On December 11, 2014, the SEC filed an amicus brief in Mikael Safarian v. American DG Energy Inc asserting that Section 922 of the Dodd-Frank Act protects internal whistleblowing. The brief notes the SEC’s strong programmatic interest in protecting individuals who choose to report potential violations internally and preserving the SEC’s ability to pursue enforcement actions against employers that retaliate against whistleblowers.

Safarian could be an important decision in the development of Dodd-Frank’s whistleblower protection provision because it could set up a circuit split on the scope of Dodd-Frank protected whistleblowing. In Asadi v. G.E. Energy(USA), LLC, the Fifth Circuit held “that the whistleblower-protection provision unambiguously requires individuals to provide information relating to a violation of the securities laws to the SEC to qualify for protection from retaliation under § 78u–6(h).” The Fifth Circuit declined to defer to the SEC’s implementing regulations, holding that Section 929A only protects individuals who are “whistleblowers” within the meaning of § 78u-6(a)(6), and that the plain language of § 78u-6(a)(6) requires a disclosure to the SEC.

Post-Asadi, the majority of district courts that have considered the issue have rejected the Fifth Circuit’s restrictive analysis and held that Section 929A protects internal disclosures. For example, in an October 2013 decision, the Southern District of New York disagreed with Asadi and found that the differing statutory definitions of “whistleblower” created an ambiguity that was best resolved by deferring to the SEC’s implementing regulations. Rosenblum v. Thomson Reuters (Markets) LLC, 984 F. Supp. 2d 141, 148 (S.D.N.Y. 2013). The U.S. District Court for the District of New Jersey took a similar approach in Khazin v. TD Ameritrade Holding Corp., No. 13-4149, 2014 WL 940703 (D.N.J. Mar. 11, 2014). In that case, the employee, an investment oversight officer at a securities firm, was terminated after reporting a compliance violation to his supervisors. Id. at *1. The court held found that the statute was ambiguous, and it was therefore appropriate to defer to the SEC’s interpretive guidance. Id. at *6.

Other district courts that have declined to follow the Fifth Circuit’s decision in Asadi include the U.S. District Court for the Southern District of New York (Yang v. Navigators Group, Inc., 2014 WL 1870802 (S.D.N.Y. May 8, 2014)), the U.S. District Court for the District of Massachusetts (Ellington v. Giacoumakis, 977 F. Supp. 2d 42 (D. Mass. 2013)), the U.S. District Court for the District of Kansas (Azim v. Tortoise Capital Advisors, LLC, 2014 WL 707235 (D. Kan. Feb. 24, 2014)), and the U.S. District Court for the District of Nebraska (Bussing v. COR Clearing, LLC, 2014 WL 2111207 (D. Neb. May 21, 2014).

However, while a majority of district courts have embraced a broader definition of “whistleblower”, several courts have expressly followed the Fifth Circuit’s precedent in Asadi. In Englehart v. Career Education Corp., the U.S. District Court for the Middle District of Florida held that an employee of an education services company who disclosed material misrepresentations in budget forecasts to her supervisor was not a whistleblower within Dodd-Frank’s statutory definition. Englehart v. Career Education Corp., 2014 WL 2619501, at *9 (M.D. Fla. May 12, 2014). The court found that the restrictive statutory definition of “whistleblower” was unambiguous, and therefore gave no weight to the SEC’s guidance, agreeing with Asadi that only an employee who complains to the SEC can be a whistleblower under the law. Id.

The Second Circuit recently declined to address the split of authority over Dodd-Frank’s definition of “whistleblower”. See Liu Meng-Lin v. Siemens AG, 2014 WL 3953672 (2d Cir. Aug. 14, 2014). In October of 2013, the U.S. District Court for the Southern District of New York decided Liu v. Siemens AG, 978 F. Supp. 2d 325 (S.D.N.Y. 2013). Liu was a compliance officer for Siemens, stationed in China. Id. at 326. On multiple occasions, Liu reported to his supervisors that Siemens was in violation of internal procedures designed to maintain compliance with the Foreign Corrupt Practices Act (“FCPA”). Id. Liu was subsequently fired, at which point he reported the potential FCPA violations to the SEC and brought a Dodd-Frank retaliation claim against Siemens. Id. at 327. The district court noted the split of authority following Asadi, and that Liu’s status as a whistleblower would be at issue if the case went forward; however, it ultimately dismissed Liu’s complaint on the grounds that Dodd-Frank’s retaliation provision does not apply extraterritorially. Id. at 333.

Liu appealed the decision to the Second Circuit, and the SEC filed an amicus brief arguing that internal whistleblowing is protected under Dodd-Frank. Liu v. Siemens AG, No. 13-4385 (2d Cir.), Brief of the SEC, Amicus Curiae in Support of the Appellant (ECF No. 50) (2d Cir. Feb. 20, 2014). In August 2014, the Second Circuit affirmed the district court’s decision, holding that there is no indication that Congress intended Dodd-Frank’s whistleblower protection provisions to apply extraterritorially. Liu Meng-Lin v. Siemens AG, 2014 WL 3953672 (2d Cir. Aug. 14, 2014). In its decision, the Second Circuit noted the split of authority on whether internal disclosures are protected, but declined to rule on that issue. Id.

SEC Whistleblower Lawyers

The experienced whistleblower lawyers at Zuckerman Law represent whistleblowers worldwide before the SEC under the Dodd-Frank SEC Whistleblower Program.  The firm has a licensed Certified Public Accountant and Certified Fraud Examiner on staff to enhance its ability to investigate and disclose complex financial fraud to the SEC, and two of the firm’s attorneys served in a high-level position at a government agency that protects whistleblowers.  Firm Principal Jason Zuckerman has been named by Washingtonian Magazine as a “Top Whistleblower Lawyer” and the firm has been ranked by U.S. News as a Tier 1 Firm in Labor & Employment Litigation.

Whistleblower law firm Zuckerman Law has substantial experience investigating securities fraud schemes and preparing effective submissions to the SEC concerning a wide range of federal securities violations, including:

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Jason Zuckerman, Principal of Zuckerman Law, litigates whistleblower retaliation, qui tam, wrongful discharge, and other employment-related claims. He is rated 10 out of 10 by Avvo, was recognized by Washingtonian magazine as a “Top Whistleblower Lawyer” in 2015 and selected by his peers to be included in The Best Lawyers in America® and in SuperLawyers.