The Split Deepens: New York District Court Holds Internal Reporting Not Protected Under Dodd-Frank

In Berman V. Neo@Ogilvy LLC, 1:14-cv-523 (Dec. 4, 2014), Judge Gregory Woods of the Southern District of New York dismissed a Dodd-Frank whistleblower retaliation claim on the ground that internal reporting is not protected under the statute.  In so holding, the court rejected the reasoning of a majority of district courts to address the issue to date (including several Southern District of New York decisions), as well as the SEC’s interpretation of the statute, and instead adopted the reasoning of the Fifth Circuit in Asadi v. GE Energy (USA), L.L.C. and a minority of district courts, which have held that “the language of the statute unambiguously requires that a person provide information to the [SEC] in order to qualify as a whistleblower under the Act.”  You can find our prior blog posts on the split over this issue here (March 4, 2014), here (January 28, 2014), here (October 3, 2013), and here (July 18, 2013).

Thus, until the Second Circuit and other Circuit courts weighs in on this issue, the answer of whether internal reporting is protected under Dodd-Frank may hinge largely upon which district judge is assigned the case.

Third Circuit Issues First Appellate Decision Compelling Arbitration of Dodd-Frank Whistleblower Claim

In Khazin v. TD Ameritrade, No. 14-1689, 2014 WL 6871393 (3rd Cir. Dec. 8, 2014), the Third Circuit affirmed a lower court’s decision compelling arbitration of a Dodd-Frank whistleblower retaliation claim.  This is the first circuit court decision to address whether such claims are arbitrable, and the decision is consistent with two district court opinions that have previously addressed the issue

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Office of Whistleblower Annual Report (Version 2014); More of the Same or Progress on Dodd-Frank Objectives?

The SEC released its Fiscal Year 2014 Annual Report (the “Report”) to Congress on the Dodd-Frank Whistleblower Program on November 18, 2014. The Report analyzes the tips received over the last twelve months by the SEC’s Office of the Whistleblower (“OWB”), provides additional information about the whistleblower awards to date, and discusses the Office’s efforts to combat retaliation against whistleblowers.

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No Good Deed Goes Unpunished: Document Preservation Notices Can Lead to SOX Violation!

On November 12, 2014, the Fifth Circuit affirmed a Department of Labor finding that Halliburton retaliated against a whistleblower by including his name in a document preservation notice.  The court also held that emotional distress damages are available under SOX.

In Halliburton, Inc. v. Administrative Review Board, the whistleblower, Anthony Menendez, claimed that he was ostracized and isolated in violation of SOX after Halliburton’s General Counsel sent out a litigation hold notice stating that the SEC had opened an investigation into concerns raised by Menendez about alleged accounting improprieties.  Menendez had previously raised these concerns internally to management.

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SEC Puts Their Money Where Their Mouth Is: $30 Million Awarded to Whistleblower

On September 22, 2014, the SEC announced its largest whistleblower award to date under its Dodd-Frank whistleblower bounty program. It awarded $30-$35 million to an anonymous whistleblower who the Commission said provided original information about an ongoing fraud that would otherwise have been difficult to detect.  That information led to the successful enforcement of an SEC action as well as unspecified related actions.  The SEC stated that the whistleblower’s award would have been even higher if he/she had not unreasonably delayed in coming forward, though the agency did not apply the unreasonable delay consideration as severely as it otherwise would have because some of the delay occurred before the whistleblower program’s inception.

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OSHA’s Whistleblower Protection Advisory Committee Discusses Planning, New Initiatives

OSHA’s Whistleblower Protection Advisory Committee (“WPAC”) met on September 3-4, 2014.  David Michaels, Assistant Secretary of Labor, OSHA, addressed the Committee and discussed recent results and initiatives of OSHA’s whistleblower program.  Some highlights:

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IRS Scripts a New Tune with Final Whistleblowing Regulations

Section 7623 of the Internal Revenue Code (the “Code”), added in 1954, authorizes the Treasury Secretary to pay an award as he deems necessary for “(1) detecting underpayments of tax, or (2) detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same.”  The program was significantly enhanced in 2006 as part of the Tax Relief and Health Care Act with the addition of Code section 7623(b), which provides that if the Treasury Secretary proceeds with any  action based on information brought to the Secretary’s attention by an individual, such individual will receive as an award at least 15% but not more than 30% of the collected proceeds (including penalties, interest, additions to tax, and additional amounts) resulting from the action (including any related actions) or from any settlement in response to such action.  The determination of the amount of such award by the IRS Whistleblower Office, which was created by the 2006 legislation, depends upon the extent to which the individual substantially contributed to such action.

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Second Circuit Holds Dodd-Frank Whistleblower Provision Does Not Apply Extraterritorially

Last week, in Liu v. Siemens, AG, the Second Circuit held that the Dodd-Frank Act’s whistleblower retaliation provision (15 U.S.C. 78u-6(h)(1)) does not apply extraterritorially, in the first Second Circuit decision to address the international scope of Dodd-Frank’s whistleblower protections against retaliation.  Liu, a citizen and resident of Taiwan, was a compliance officer for Siemens China Ltd., a wholly owned subsidiary of Siemens AG.  Siemens AG is a German corporation with shares listed on the New York Stock Exchange.  Liu claimed Siemens wrongfully terminated his employment in retaliation for reporting that Siemens China Ltd. employees were making improper payments to Chinese officials in North Korea and China in connection with the sale of medical equipment in those countries, in violation of the Foreign Corrupt Practices Act (“FCPA”).

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Second Circuit Rejects Definitively and Specifically Standard But Upholds Dismissal of SOX Whistleblower Complaint in Nielsen v. AECOM

Last week, the Second Circuit upheld a district court’s dismissal of a plaintiff’s Sarbanes-Oxley (“SOX”) whistleblower claim – but not before rejecting the “definitively and specifically” standard on which the district court’s decision relied.  Nielsen v. AECOM Tech. Corp., No. 13-235-cv (2d Cir. Aug. 8, 2014).

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Can You Hear the Whistle Blowing?: SEC Punishes Company that Did Not Address Fraud Allegations by Whistleblower

The U.S. Securities and Exchange Commission recently announced the latest whistleblower bounty awarded under the Dodd-Frank Act, which authorizes rewards for original information about violations of securities laws.  Whistleblowers can receive 10 percent to 30 percent of the money collected in an SEC enforcement action where the monetary sanctions imposed exceed $1 million.

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