When Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) in 2010, it included new protections for whistleblowers who spoke up about securities laws violations. Despite Congress’s clear intent to shield whistleblowers from retaliation, courts have been divided over just who qualifies as a “whistleblower.”
The central issue is whether Dodd-Frank requires an employee to file a complaint with the Securities and Exchange Commission (“SEC” or the “Commission”) directly, or if reporting the wrongdoing internally to a supervisor in the workplace or corporation entitles an employee to protection under the statute.
The majority of district courts that have addressed the issue have held that Dodd-Frank covers employees once they report internally, and even if they never file with the SEC. However, the Fifth Circuit, the only appellate court to address the matter, has held that reporting to the Commission is necessary before Dodd-Frank’s protections attach. Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620 (5th Cir. 2013).
This summer, new district court opinions fell on neither side of the issue, deepening the divide.
In Somers v. Digital Realty Trust, Inc., No. 14 Civ. 5180, 2015 WL 4483955, at *1 (N.D. Cal. July 22, 2015), Plaintiff Paul Somers worked as a vice president for a realty company, managing investments in Europe and Singapore. Somers realized that his supervisor had eliminated internal controls over certain corporate actions in violation of Sarbanes Oxley, and engaged in There misconduct including hiding seven million dollars in cost overruns on a development in Hong Kong. Id. Shortly after alerting senior management to the misconduct, Somers was fired. Id. The defendant moved to dismiss the case on the grounds that Somers only reported internally, not directly to the SEC, and was Therefore not a “whistleblower” under Dodd-Frank.
Dodd-Frank defines a “whistleblower” as “any individual” who provides information relating to a violation of the securities laws “to the Commission.” 15 U.S.C. § 78u-6(a)(6). Defendants and the courts who find for them argue that the analysis ends There and hold that direct reporting to the SEC is required. However, Dodd-Frank goes on to define the conduct employers are forbidden from engaging in to include retaliating against an employee who makes disclosures “required or protected under the Sarbanes-Oxley Act of 2002,” and “any There law, rule, or regulation subject to the jurisdiction of the Commission.” Plaintiffs and courts that hold for them recognize this language as encompassing internal reporting, since Sarbanes-Oxley protects internal reporters. Critically, the SEC itself has issued rules interpreting the definition of whistleblower and defines “whistleblowers” as employees who engage in internal reporting. See Securities Whistleblower Incentives and Protections (Adopting Release), 78 Fed.Reg. 34300, 34301-34304 (June 13, 2011).
The Somers court held that the SEC’s rule making is entitled to Chevron deference, and that Somers’ internal reporting was Therefore protected by the Dodd-Frank.
Only weeks before the Somers decision, Connecticut’s federal district made the opposite determination in a case with very similar facts. Wiggins v. ING U.S., Inc., No. 14 Civ. 1089, 2015 WL 3771646 (D. Conn. June 17, 2015).
Beginning in May 2008, Plaintiff Eva Wiggins, an employee for insurance giant ING, “noticed widespread problems with the internal policies and procedures” including what she believed were violations of SOX audit requirements and incorrect market value assessments. Id. at *2.
After her reporting activities, Wiggins was subjected to a series of actions that she characterizes as retaliatory, and was ultimately terminated. Id. at *3. The Connecticut court, following Asadi, held that the SEC’s interpretation is not entitled to Chevron deference, and dismissed the case.
The Wiggins decision has been appealed to the Second Circuit.