In 2010, the Dodd Frank Act was enacted to further financial reform and bring about greater integrity from those working on Wall Street. One of the hallmark features of the Act involves the implementation of a whistleblower program designed to incentivize those with original information about securities fraud to come forward and disclose what they know to SEC investigators. Under the provisions of the Dodd Frank Act, any employee who reports information to a government entity is shielded from retaliation by his employer. If an employer demotes or terminates an employee based on his decision to report fraud, the employer itself can face significant liability under the Act, as well as an injunction requiring the reinstatement of the employee.
In a closely-watched SEC whistleblower case involving the Siemens corporation, a judge recently dismissed a whistleblower’s retaliation claim after finding that the anti-retaliation language in Dodd Frank only applies to employees who report fraud externally to government agencies like the DOJ or SEC. If a company has implemented internal compliance procedures, and the employee chooses to take this avenue, the employee has no legal recourse against the employer should it decide to fire or demote him based on the disclosures. Specifically, the Court considered whether an employee who reports internally fits into Dodd Frank’s definition of whistleblower, which includes:
- (i) Whistleblowers who possess a reasonable belief that the information you are providing relates to a possible securities law violation that has occurred, is ongoing, or is about to occur, and;
- (ii) The whistleblower provides that information in a manner described in the Securities and Exchange Act; and
- (iii) The anti-retaliation protections apply whether or not the whistleblower satisfies the requirements, procedures, and conditions to qualify for an award.
The whistleblower relied on the language in Section (iii) to impliedly apply to those who report internally, as they would be ineligible for a qui tam award. However, the Court rejected this argument and noted several incongruent holdings by other District and Circuit courts on the issue.
The District Court also grappled with the fact the whistleblower is a resident of Taiwan and was employed in the Siemens’ subsidiary Siemens China. It held that the Dodd Frank Act makes no mention of “extraterritoriality” to protect foreign whistleblowers and, where extraterritoriality is not mentioned, “there is none.”
Following the controversial ruling, the whistleblower appealed the case to the Second Circuit for clarification and the SEC filed an amicus curiae brief in support of the plaintiff’s bid for anti-retaliation protection. Its arguments include the following:
- When drafting the language of the Dodd Frank Act, Congress never intended it to protect only those choosing to report externally. This interpretation would create a result contradictory to Congress’ intent to deter securities fraud;
- The SEC has interpreted Dodd Frank to protect internal reporters from retaliation and is entitled to deference;
- Interpreting the whistleblower provision to only apply to external reporters indirectly harms investors.
If you are considering reporting securities fraud, you may have similar concerns about your job security after deciding to disclose. The best thing to do before reporting your information either internally or externally is to meet with a whistleblower attorney familiar with the intricacies of the SEC’s whistleblower laws. For help with your securities fraud case, contact Berger Montague today!