On August 5, 2022, the United States Court of Appeals for the Second Circuit overturned a judgment of approximately $1 million awarded to a purported whistleblower after a jury determined in 2017 that the financial institution unlawfully terminated the employee in retaliation for his refusal to change certain aspects of his research reports related to commercial mortgage-backed securities. In narrowing the universe of alleged whistleblowers who may be entitled to relief for retaliation, the Second Circuit held that the trial judge failed to inform the jurors as to the critical burden whistleblowers bear under the Sarbanes-Oxley Act: namely, that a whistle-blower must prove that their employer intended the alleged employment action to be retaliatory.

The purported whistleblower was hired by the financial institution in 2011 as a research analyst in the firm’s commercial mortgage-backed securities business. According to the whistleblower, during his time at the firm, individuals from the trading desk routinely pressured him to change his reports to support the trading desk’s business strategies despite the SEC’s requirements related to research independence. At trial, the purported whistleblower argued that there was a “concerted, extended effort” by his managers and colleagues to get him to write skewed assessments of the firm’s mortgage-backed securities business. According to the whistleblower, he was fired from the firm in 2012 in retaliation for telling his direct supervisor about the pressure he was receiving from the trading desk. Instead, according to the financial institution, the purported whistleblower was terminated as part of a round of layoffs the firm undertook in 2011.

The jury awarded the purported whistleblower $903,300 after receiving an instruction from the trial judge that his employer was liable if retaliation was a “contributing factor” in firing a whistleblower. The Second Circuit held that a new trial was required and that a specific jury instruction must be given to make clear that an employee must show “retaliatory intent” to prove an anti-retaliation claim under Sarbanes-Oxley. Specifically, the Second Circuit found that an employer’s actions are deemed discriminatory “when they are based on the employer’s conscious disfavor of an employee for whistleblowing.” As such, and consistent with the Second Circuit’s interpretation of the Federal Railroad Safety Act’s anti-retaliation provision, “the plain meaning of the statutory language makes clear that retaliatory intent is an element” rather than a contributing factor. This decision creates a circuit split when it comes to proving anti-retaliatory claims made under Sarbanes-Oxley, with both the Fifth Circuit in 2014 and the Ninth Circuit in 2010 ruling that a showing of retaliatory intent is not necessary.