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Both the Sarbanes-Oxley and Dodd-Frank Acts protect whistleblowers. However, Dodd-Frank provides greater protection. It has a longer statute of limitations, does not require exhaustion of administrative remedies before filing suit in federal court, and allows for the recovery of greater damages. As a result most whistleblowers prefer to sue under Dodd-Frank rather than SOX.
In order to bring suit under Dodd-Frank, a person has to meet that statute’s definition of whistleblower. One section of Dodd-Frank defines a whistleblower as a person who provides information to the Securities and Exchange Commission (SEC). However, another section prohibits retaliation against whistleblowers because of disclosures protected under SOX — which would include reports made internally.
A split had developed among the federal district courts as to whether a person who disclosed violations internally and not to the Commission could sue under Dodd-Frank. And now there is a split in the U.S. Courts of Appeal. In Berman v. Neo@Ogilvy, LLC, 2015 U.S. App. LEXIS 16071, the 2nd Circuit ruled that a whistleblower could sue under Dodd-Frank when he reported violations internally. Two years earlier, the 5th Circuit, in Asadi v. G.E. Energy (USA) LLC, 720 F.3d 620 (5th Cir. 2013) had ruled otherwise.
The plaintiff in Berman was the finance director of the defendant company. He claimed he discovered various accounting practices that amounted to fraud and violations of securities laws. He reported the violation internally, and, according to the plaintiff, was terminated due to his whistleblowing activities in violation of Dodd-Frank. The district court dismissed his complaint on the grounds that Dodd-Frank only protects employees discharged for reporting violations to the Commission.
The 2nd Circuit reversed, holding that the “arguable tension” between the pertinent provisions of Dodd-Frank regarding whistleblower protections created a sufficient ambiguity to warrant the court to defer to the Commission’s interpretive rule. And according to the Commission, Dodd-Frank’s anti-retaliation protections apply to three different categories, one of which includes individuals who report to persons or governmental authorities other than the Commission.
This decision is particularly relevant to in-house counsel. As the court explained, under Sec. 307 of SOX and the SEC’s Standards of Professional Conduct, attorneys are required to report violations to the CLO or CEO and if there is no appropriate response, to the audit committee. Reporting to the Commission is contemplated to occur only after internal reporting. Chances are if the company is going to retaliate it will do so long before counsel reports to the Commission. Therefore, an interpretation of Dodd-Frank other than the one being adopted by the Berman court would in many cases eliminate in-house counsel from the enhanced protection of Dodd-Frank.
This is a decision that can significantly affect counsel — in-house and outside lawyers who represent employees or companies in whistleblower cases. And while Berman’s impact may currently be limited to states within the 2nd Circuit’s jurisdiction, the split the decision caused may result in the U.S. Supreme Court deciding whether Dodd-Frank applies to whistleblowers who report violations to persons or government authorities other than the Securities and Exchange Commission.
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