Where the Whistle Blows: SEC Invites Circuit Split Over Reach of Dodd-Frank Anti-Retaliation Provision


The Securities and Exchange Commission recently weighed in on a whistleblower case pending in the Second Circuit, urging the court in Liu v. Siemens, A.G. to adopt the SEC’s interpretation of the Dodd-Frank Act’s anti-retaliation provision.  If the Second Circuit agrees, its ruling would create a circuit split over whether Dodd-Frank protects from retaliation internal whistleblowers who do not make a report to the SEC, likely teeing up the issue for resolution by the Supreme Court.  

At issue is a question of statutory interpretation that has vexed a number of federal district courts: whether Dodd-Frank’s definition of a whistleblower conflicts with the Act’s anti-retaliation provision.  Dodd-Frank defines a whistleblower as an individual who provides information relating to a securities laws violation to the SEC.  See 15 U.S.C. § 78u-6(a)(6).  But the law’s anti-retaliation provision bans retaliation against whistleblowers who make disclosures protected under provisions of federal law that do not require reporting to the SEC, including the Sarbanes-Oxley Act.  See 15 U.S.C. § 78u-6(h)(1)(A).

Several district courts have discerned a contradiction between these provisions, concluding that the anti-retaliation provision expands the Act’s definition of a whistleblower.  In a rule issued in 2011, the SEC agreed that a whistleblower need not make a disclosure to the Commission to be protected under the Dodd-Frank Act’s anti-retaliation provision.

However, the Fifth Circuit took a different view in Asadi v. G.E. Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013), reasoning that the perceived conflict between the provisions is based on a misreading of the statute.  The Asadi court found that the Dodd-Frank Act “expressly and unambiguously requires that an individual provide information to the SEC” to qualify as a whistleblower.  The court concluded that the categories of activity protected under the Act’s anti-retaliation provision do not conflict with the whistleblower definition, but simply define the scope of whistleblower reporting that will be protected.

Since Asadi, some district courts in other circuits have disagreed with the Fifth Circuit, finding the statute to be ambiguous and granting deference to the SEC’s view.  Liu gives the Second Circuit an opportunity to grapple with the issue.

The plaintiff in Liu, a compliance officer for a Siemens A.G. subsidiary in China, alleged that he suffered retaliation for reporting kickbacks to company management.  After his contract was not renewed, the plaintiff reported the alleged wrongdoing to the SEC and brought a Dodd-Frank retaliation complaint in the Southern District of New York.  Siemens argued that the plaintiff did not qualify as a whistleblower under the statute because he did not make his report to the SEC until after the alleged retaliation.  However, the district court dismissed the complaint on other grounds, concluding that Dodd-Frank’s anti-retaliation provision does not apply extraterritorially.  The plaintiff appealed.

In an amicus brief, the SEC urged the Second Circuit to reject the Asadi court’s reasoning and to defer to the SEC’s interpretation of Dodd-Frank’s whistleblower protections.  If the Second Circuit reaches the issue and agrees, its decision would create a circuit split with the Fifth Circuit.  But even if Liu is resolved on other grounds, as appears likely, the sharp divergence among the lower courts suggests that the issue may eventually make its way to the Supreme Court.  Stay tuned. . .