• The SEC Tells the Second Circuit that Dodd-Frank Whistleblowers Need Not File a Whistleblower Report With the SEC
  • April 2, 2014 | Authors: Bryan B. House; Pamela L. Johnston; Courtney Worcester
  • Law Firms: Foley & Lardner LLP - Milwaukee Office ; Foley & Lardner LLP - Los Angeles Office ; Foley & Lardner LLP - Boston Office
  • On February 20, 2014 the SEC submitted an amicus brief to the United States Court of Appeals for the Second Circuit in Liu v. Siemens AG, No. 13-4385, in which the SEC pressed its view that whistleblowers need not report wrongdoing to the SEC in order for that person to be protected under the Dodd-Frank Act’s whistleblower anti-retaliation provision, 15 U.S.C. §78u-6(h)(1). The Second Circuit proceedings are being closely watched because district courts have been divided on the issue for several years. The only other appellate court to consider the issue, the United States Court of Appeals for the Fifth Circuit, held last year in Asadi v. G.E. Energy (U.S.A.), L.L.C., 720 F.3d 620 (5th Cir. 2013), that wrongdoing had to be reported to the SEC because a different Dodd-Frank provision, 15 U.S.C. § 78u-6, unambiguously defines a “whistleblower” as someone who provides information to the SEC. See our July 19, 2013 Legal News Alert.

    The SEC argued in its amicus brief that the Second Circuit should reverse because its rules interpret Dodd-Frank’s anti-retaliation provision to protect any individual who engages in whistleblowing activities described in 15 U.S.C. §78u-6(h)(1), regardless of whether the individual files a report with the SEC. The SEC argued that the statute was ambiguous because, despite the definition of “whistleblower,” it defines a broad array of whistleblowing activities, including “making disclosures required or protected under the Sarbanes-Oxley Act of 2002” - such as internal disclosures that do not involve filing a report with the SEC. The SEC dismissed the Asadi court’s interpretation as “based on a flawed understanding of the statutory scheme.”

    The SEC asserted that 15 U.S.C. §78u-6(h)(1) is “best read as an implied exception to the definition of whistleblower ....” In light of this ambiguity, the SEC promulgated a rule that clarifies “[f]or purposes of the anti-retaliation protections afforded by [15 U.S.C. §78u-6(h)(1)], you are a whistleblower if ... [y]ou provide that information in a manner described in 15 U.S.C. §78u-6(h)(1)(A).” The SEC argued in its brief that its interpretation is reasonable because it resolves the statutory ambiguity and effectuates the broad anti-retaliation protections that the statute contemplates. The SEC further argued that its interpretation avoids disincentivizing individuals from reporting internally to their employers - one of the SEC’s core objectives. Otherwise, individuals might be discouraged from reporting internally if doing so disqualifies those individuals from anti-retaliation protection.

    Whether the Second Circuit will answer the question of whether a Dodd-Frank whistleblower must report to the SEC to gain protection is not certain. The district court did not reach the issue, dismissing the plaintiff’s complaint on the grounds that the Dodd-Frank anti-retaliation provisions did not apply outside the United States. However, if the Second Circuit addresses the issues and decides it differently from the Fifth Circuit, the question of whether one must report to the SEC in order to be protected from retaliation under the Dodd-Frank whistleblower provisions may be on its way to the United States Supreme Court.