In a much-anticipated opinion, a divided panel of the Second Circuit Court of Appeals held in Berman v. Neo@Ogilvy LLC, that whistleblowers who report wrongdoing internally, but not to the Securities and Exchange Commission (“SEC”), are protected by the anti-retaliation provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).
The decision acknowledges the tension between the definitions subsection of Dodd-Frank and the anti-retaliation provisions and concludes that the provisions are sufficiently ambiguous to warrant deference to the SEC’s interpretive rule. As explained in the decision, the Dodd-Frank Act, in the definitions subsection, defines “whistleblower” to mean “any individual who provides . . . information relating to a violation of the securities laws to the Commission . . .” The anti-retaliation provision, however, “does not within its own terms limit its protection to those who report wrongdoing to the SEC,” rather it “expands the protections of Dodd-Frank to include the whistleblower protection provisions of Sarbanes-Oxley, and those provisions, which contemplate an employee reporting violations internally, do not require reporting violations to the [SEC].” The Second Circuit’s decision describes the legislative process pursuant to which Dodd-Frank was passed, stating that the anti-retaliation provisions were added at “the last minute” and opining that given “the realities of the legislative process . . . [w]hen conferees are hastily trying to reconcile the House and Senate bills . . . it is not at all surprising that no one noticed that the new subdivision and the definition of ‘whistleblower’ do not fit together neatly.”
The decision states that “[i]f we had to choose between reading the statute literally or broadly to carry out its apparent purpose, we might well favor the latter course,” but finds it unnecessary to “definitively construe” the statute because the tension within the statute renders it sufficiently ambiguous to give deference to the SEC’s reasonable interpretation. As the Court acknowledged, SEC Rule 21F-2(b)(1) permits a whistleblower to pursue Dodd-Frank remedies for alleged retaliation after reporting misconduct internally, but not to the SEC before his termination.
The Second Circuit’s decision conflicts with the Fifth Circuit’s opinion in Asadi v. G.E. Energy (USA), L.L.C., which I described in an earlier post entitled “When Is A ‘Whistleblower’ Not Really A ‘Whistleblower’?” The majority opinion acknowledges the circuit split noting that there already is a “ landscape of existing disagreement among a large number of district courts.”
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In a dissenting opinion, Judge Dennis Jacobs opines that the Second Circuit is “firmly on the wrong side” of the circuit split because the reading of the statute given by the Fifth Circuit is the “more natural reading of the statute.” Finding the statute unambiguous as written, the dissent states “the sole consequence of applying the statute as written is that those who report securities violations only to their employer will receive statutory protection that in the SEC’s view is sub-optimal.”
Although the majority opinion may provide some comfort to potential whistleblowers, this issue is far from resolved, and the Second Circuit’s opinion has just made it increasingly likely that the Supreme Court will intervene to finally decide the extent of protection afforded whistleblowers under the anti-retaliation provisions.
From The Insider Blog: White Collar Defense & Securities Enforcement.