SDNY Decision Broadly Construes Dodd-Frank Whistleblower Protection Provision

The U.S. District Court for the Southern District of New York issued a good decision for whistleblowers providing much needed clarity on the scope of the anti-retaliation provision in Section 922(h), which prohibits retaliation for the following acts: (1) “providing information to the Commission in accordance with this section;” (ii) “initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information;” or (iii) “making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.), the Securities Exchange Act of 1934, 15 (15 U.S.C. 78a et seq.), including section 10A(m) of such Act (15 U.S.C. 78f(m)), section 1513(e) of title 18, United States Code, and any other law, rule, or regulation subject to the jurisdiction of the Commission.”  There has been some ambiguity as to whether or not the anti-retaliation provision in Section 922 of Dodd-Frank (the provision that rewards whistleblowing to the SEC)  protects solely disclosures to the SEC.  The confusion stems in part from the definition of “whistleblower” as “any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.” 15 U.S.C. § 78u-6(a)(6) (emphasis added).

Judge Sand held that protection is afforded whistleblowers who make internaldisclosures falling into one of four categories: “disclosures that are required or protected under the Sarbanes-Oxley Act . . . the Securities Exchange Act of 1934 . . . section 1513(e) of title 18, United States Code, and any other law, rule, or regulation subject to the jurisdiction of the Commission.”  And while Judge Sand held that Section 922’s protection of disclosures to the SEC does not cover internal reporting, he also held that the plaintiff may be protected for acting jointly with outside counsel in providing information to the SEC, i.e., initiating an internal investigation that results in the company or its counsel providing information to the SEC could be protected conduct.  Plaintiff’s theory of coverage is based on the  Proposed Rules for Implementing the Whistleblower Provisions of Section 21F of the Securities Exchange Act of 1934, 75 Fed. Reg. 70488 (Nov. 17, 2010), which states that “You are a whistleblower if, alone or jointly with others, you provide the Commission with information relating to a potential violation of the securities laws.” 75 Fed.Reg. at 70519 (to be codified at 17 C.F.R. 240.21F-2(a)).

Tagged: Dodd-Frank Act, Enforcement Bodies, Securities and Exchange Commission (SEC), Whistleblower Laws (Federal)