On August 4, 2015, the SEC released an interpretation of the Dodd-Frank Act’s whistleblower-protection requirements and the SEC’s Exchange Act Rule 21F. [Release No. 34-75592.] The SEC noted that whistleblowers must report misconduct to the SEC to qualify for whistleblower awards under the Dodd-Frank Act. However, the SEC reaffirmed its earlier position that individuals who report securities-law violations internally to their employer, but who do not report them to the SEC, are protected by the Dodd-Frank Act’s anti-retaliationprovisions. The SEC acted to make clear that nothing in Exchange Act Rule 21F-9(a) is meant to suggest otherwise.
The SEC’s position is significant because, in several respects, the Dodd-Frank Act provides greater protection against retaliation to whistleblowers than does the Sarbanes-Oxley Act. For example, in a Dodd-Frank retaliation claim, a plaintiff has a substantially longer period to bring a claim, can go directly to federal court, and may obtain an award of double back-pay.
The SEC reasoned in its interpretation that the language in the Dodd-Frank Act is ambiguous because one section defines a “whistleblower” as one who reports misconduct to the SEC, but another section of the Act forbids retaliation against “whistleblowers” who report conduct internally. The SEC argued that its position accords with Congress’ intent. Among other reasons, the SEC argued that individuals would be disincentivized from reporting misconduct internally if they could not gain protection under the Dodd-Frank anti-retaliation provisions.
However, many businesses do not share the SEC’s belief that its interpretive ruling is “good” for business. Indeed, the U.S. Chamber of Commerce opposed the SEC’s position in an amicus brief in a case presenting the same issue that is now pending a decision before the Second Circuit. Berman v. Neoatogilvy LLC, No. 14-4626 (2nd Cir.). The Second Circuit held oral argument in June 2015.
The SEC’s guidance noted but disagreed with the Fifth Circuit’s ruling in 2013 that employees who report misconduct internally, but not to the SEC, are not protected from retaliation under the Dodd-Frank Act, and instead are limited to retaliation claims under the Sarbanes-Oxley Act. Asadi v. G.E. Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013). The Ninth Circuit also may soon review the issue soon, if it grants a petition for interlocutory review filed on July 31, 2015.Somers v. Digital Realty Trust, Inc., 2015 U.S. Dist. LEXIS 97132 (N.D. Calif. July 22, 2015); Somers v. Digital Realty Trust, Inc., 2015 U.S. Dist. LEXIS 96479 (N.D. Calif. July 22, 2015); Somers v. Digital Realty Trust, Inc., Case No. 15-80136 (9th Cir. filed July 31, 2015). If a split develops among the Circuits, the issue may be presented to the U.S. Supreme Court.
The SEC interpretation is available at: