Setting an important precedent for all SEC whistleblowers, a district court recently issued a ruling concerning the anti-retaliation provisions of the Dodd-Frank Wall Street Reform & Consumer Protection Act. Last month, the court ruled that whistleblowers need not report incidents of fraud directly to the United States Securities and Exchange Commission (SEC) in order to be covered by the Dodd-Frank Act.
Trevor Murray, a former senior Commercial Mortgage Backed Securities (CMBS) strategist for UBS, alleged that UBS and its parent company, UBS AG, knowingly violated the whistleblower protection provisions of the Dodd-Frank Act. According to Murray, the company terminated his employment in retaliation for reporting incidents of securities fraud to his UBS supervisor. After being fired, Murray filed an official complaint with the United States District Court, Southern District of New York and the United States Department of Labor, Occupational Safety and Health Administration on August 2, 2012.
According to the official complaint, by terminating Murray’s employment, UBS violated provisions of both the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010. These whistleblower provisions were established in order to protect employees from workplace retaliation after voicing concerns to their supervisors about, or refusing to participate in, activities that they believe are fraudulent in connection with the sale of securities.
Allegations of UBS Securities Fraud
During his employment with UBS, Murray’s responsibilities included performing research and creating detailed reports about CMBS products that were distributed to clients, in which UBS held multiple trading positions.
According to the official complaint, Murray’s supervisors specifically instructed him not to publish research that was “unfavorable to securities and loan trading positions to which UBS had exposure.” Murray also alleged that several UBS members, each of whom were involved in CMBS trading and commercial mortgage originations, began pushing him to falsify his research findings. According to Murray, the head of CMBS trading and loan origination told him that skewed research would help “improve conditions in the CMBS market.” In addition, Murray alleged that he was encouraged to falsify his product data, as it was a “significant revenue generator” for the UBS investment bank.
Feeling extremely uncomfortable, Murray approached his UBS supervisors and voiced concern about the members’ suggestions to publish bogus research. After doing so, Murray claims he experienced workplace retaliation by being criticized and deliberately ostracized by other UBS members. None the less, Murray felt certain his supervisors would rectify the situation and he continued with his duties at UBS. Unfortunately, no action was ever taken and members continued to pressure him about publishing fraudulent research. Determined to be heard, Murray continued to voice concern to UBS supervisors on multiple occasions and. Although Murray received stellar job reviews, he was ultimately fired one month after his last complaint to UBS supervisors.
The Dodd-Frank Whistleblower Provisions
According to Murray, UBS’s decision to terminate his employment was specifically related to his voicing concerns about, and his refusal to fall victim to, the pressure and intimidation tactics of multiple members of CMBS trading and loan origination at UBS. Murray alleged he was repeatedly asked to produce research that, in his opinion, violated the very rules and regulations that were established to protect consumers from the fraudulent practices connected to the sale of securities.
UBS tried, in vain, to counter Murray’s claims by countering that a Dodd-Frank whistleblower is defined under Section 21F(a)(6) as a “party providing information about a violation of the securities laws to the Commission.” They argued the Dodd-Frank Act whistleblower provisions only applied to an employee who directly provides information to the SEC. Murray, however, pointed out that Section 21F(h)(1)(A)(iii) provides an exception, protecting any employee who makes disclosures required under the Sarbanes-Oxley Act of 2002.
The court ultimately sided with Murray, finding it is not necessary for whistleblowers to report fraudulent conduct directly to the SEC in order to be entitled to the anti-retaliation protections of the Dodd-Frank Act. The court also made note of previous case rulings that showed Murray’s interpretation of the Dodd-Frank whistleblower provisions was correct. Additionally, the SEC has issued a rule clarifying the anti-retaliation protections and their application to those people reporting to “persons or governmental authorities other than the Commission.”