In an amicus brief filed earlier this month in Berman v. Neo@Ogilvy LCC, the SEC asked the Second Circuit to defer to the Commission and hold that individuals who report misconduct internally are covered by the anti-retaliation protections of the Dodd-Frank Act of 2002, regardless of whether they report the information to the SEC.
The case is on appeal from Southern District of New York decision in which the judge dismissed anti-retaliation claims for failure to state a claim “on the grounds that plaintiff has not adequately alleged that he is a ‘whistleblower’ within the meaning of Dodd-Frank and that, therefore, he cannot avail himself of the Act’s anti-retaliation protections.” In accordance with “the holding of the only court of appeal to consider this question”—Asadi v. G.E. Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013)—the district court focused on the fact that the plaintiff “did not report any information to the Commission prior to the alleged retaliatory acts” and, for that reason, held that the plaintiff was not covered by the Dodd-Frank whistleblower protections.
The SEC has a different view of the scope of those protections. In its brief to the Second Circuit, the SEC stressed that it cleared up any ambiguity on this issue when it issued a rule that “interpreted the anti-retaliation protections to extend to any individual who engages in the whistleblowing activities described in [Exchange Act] Section 21F(h)(1)(A), irrespective of whether the individual makes a separate report to the Commission.” The SEC asserted that this rule, Exchange Act Rule 21F-2(b)(1), is “entitled to deference” under Chevron, USA, Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).
The SEC stressed that its “final rules were carefully calibrated” to encourage individuals to make whistleblower reports internally “by providing ‘strong incentives’ for individuals in appropriate circumstances to report internally in the first instance.” As for Asadi, according to the SEC the Fifth Circuit’s reading of Dodd-Frank was “based on a flawed understanding of the statutory scheme” because it failed “to consider the role that [these protections occupy] within the broader securities-law framework, particularly the internal reporting processes that Congress has previously established.”
Another rule promulgated by the SEC, Rule 21F-2(b)(2), gives the SEC the power to bring an enforcement action against a company that violates Dodd-Frank’s anti-retaliation provisions. Last year, the SEC brought its first-ever charge of whistleblower retaliation under Dodd-Frank.
All of this activity might cause one to wonder why the SEC cares so much? It’s likely they are worried that whistleblowers will be terminated by their employers before becoming whistleblowers, and possibly decreasing the number of reports to the SEC. For additional discussion of the Dodd-Frank whistleblower protections, see this blog post.