Under the Anti-Retaliation Provision of the Sarbanes-Oxley Act, a registered representative is protected from retaliatory termination for reporting securities violations, even if he or she never filed an allegation of wrongdoing with the SEC. But, does that same registered representative still receive protection from discharge under the greater immunities afforded by the Dodd-Frank Act of 2010? Though the Dodd-Frank Act stipulates that representatives must report any alleged wrongdoings to the SEC, it remains a questionable defense against the Sarbanes-Oxley Act.
In August 2015, the SEC issued its interpretation on the matter, stating that a whistleblower is not required to report alleged wrongdoing to the SEC in order to be protected by the anti-retaliation provisions of Dodd-Frank. According to the SEC, internal whistleblowing, which was previously protected solely under the provisions of the Sarbanes-Oxley Act, is now also deemed provisionary under Dodd-Frank.
Following the SEC’s statement, the Second Circuit Court of Appeals decided that an employee, who reports an alleged securities violation only to his or her employer, and not to the SEC, is still protected by the anti-retaliation provisions afforded by Dodd-Frank. 2015’s Berman v. Neo@Ogilvy LLC is exemplary in its dealings with conflicting whistleblowing provisions found in both Dodd-Frank and Sarbanes-Oxley.
Mr. Berman, a terminated finance director, claimed his employer, Neo@Ogilvy LLC, violated the whistleblower protections of Dodd-Frank by terminating him for internally raising concerns regarding practices he alleged constituted accounting fraud. Though Mr. Berman had not reported these alleged fraudulent practices to the SEC, his argument against his ex-employer reinvigorated the debate over whether Dodd-Frank’s anti-retaliation protections cover individuals who report only to their employer.
The Second Circuit decided that the provisions of Dodd-Frank are ambiguous because one section of Dodd-Frank defines a “whistleblower” as individuals who report alleged securities violations to the SEC; however, another section of Dodd-Frank prohibits retaliation against individuals who are defined as whistleblowers under the Sarbanes-Oxley Act, which protects employees who only report violations internally.
In 2013, however, the Fifth Circuit Court of Appeals decided a similar case with the opposite result, a testament to Dodd-Frank’s looming inconsistencies. Consequently, the issue of whistleblower protection in the financial services industry is likely headed to the Supreme Court for a definitive resolution. Meanwhile, the Second Circuit’s more recent decision may lead to significantly more whistleblower retaliation claims due to Dodd-Frank’s extensive statute of limitations, double back pay damages, and null requirement to exhaust administrative remedies prior to suit.