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August 16, 2015 Practice Points

Internal and External Whistleblowers Entitled to Same Protections

The SEC issued an interpretation, at least in part, to avoid contrary rulings by the federal courts of appeal.

By Zachary H. Greene – August 16, 2015

In an interpretation issued on August 4, 2015, the Securities and Exchange Commission (SEC) clarified that the employment-retaliation protections provided to whistleblowers under the Dodd-Frank Act are fully available to internal, as well as external, whistleblowers.

Section 922 of Dodd-Frank amended the Exchange Act by adding section 21F, codified at 15 U.S.C. § 78u-6(h)(1), to establish incentives and protections for individuals who report possible violations of federal securities laws. These incentives and protections are generally composed of monetary awards for reporting, assurances of confidentiality, and protections against adverse employment actions. However, section 21F narrowly defined a “whistleblower” entitled to these incentives and protections as limited to individuals who provide information relating to violations of the securities laws to the SEC in the manner provided by applicable future rulemaking. Yet the SEC’s rule-based whistleblower program, which was largely established in the wake of Sarbanes-Oxley, offers broad protection to individuals “making disclosures that are required or protected under” SOX, the Exchange Act, “and any other law, rule, or regulation” subject to SEC jurisdiction.

To resolve this ambiguity with respect to the implementation of Dodd-Frank, the SEC promulgated two definitions of “whistleblower” under Rule 21F-2. The first definition, found in Rule 21F-2(a), defines a whistleblower as an individual who provides the SEC with information pursuant to the reporting procedures outlined in Rule 21F-9(a). The second definition, found in Rule 21F-2(b)(1), specifically applies for “purposes of the anti-retaliation protections” of section 21F of the Exchange Act, and does not require reporting to the SEC.

The SEC issued its August 4 interpretation, at least in part, to avoid contrary rulings by the federal courts of appeal. In 2013, the Fifth Circuit, in Asadi v. GE Energy USA LLC, 720 F.3d 620 (5th Cir. 2013), dismissed a whistleblower claim brought by a terminated executive who never reported his corporate concerns to the SEC. In June 2015, a panel of the Second Circuit hearing argument in Berman v. Neo@Ogilvy LLC, No. 14-4626, appeared divided over whether to apply the rule from Asadi in a case filed by an employee who was terminated before raising her complaints with the SEC. In addition, over the last few years, to further combat judicial decisions undermining a robust whistleblower program, the SEC has regularly filed amicus curiae briefs in state and federal retaliatory-discharge litigation urging courts to adopt its interpretation of Rule 21F-2.

In addition to reaffirming the plain meaning of Rule 21F-2(b)(1), the SEC found that its interpretation of the applicable whistleblower protections “best comports with our overall goals in implementing the whistleblower program. Specifically, by providing employment retaliation protections for individuals who report internally first to a supervisor, compliance official, or other person working for the company . . . our interpretive rule avoids a two-tiered structure of employment retaliation protection that might discourage . . . the benefits that can result from internal reporting.”

Zachary H. Greene, Miller & Martin PLLC, Chattanooga, TN

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