Just who’s covered by the whistle-blower provisions of the Dodd-Frank Act? It depends who you ask.
The answer is murky, and it got even murkier on Friday when a federal judge in Manhattan found that individuals don’t have to report alleged wrongdoing directly to the U.S. Securities and Exchange Commission in order to qualify for whistle-blower protection. U.S. District Judge Shira Scheindlin refused to dismiss whistle-blower claims brought by a former Thomson Reuters Corporation employee, Mark Rosenblum, who alleges that the company retaliated against him for spotlighting the company’s habit of giving high-paying clients early access to market-moving survey data.
According to Rosenblum’s amended complaint, he reported the alleged securities violations at Thomson Reuters (Markets) LLC to the Federal Bureau of Investigation and internally at the company before he was fired in August 2012, but he didn’t alert the SEC. In ruling that Rosenblum qualifies for Dodd-Frank whistle-blower status anyway, Scheindlin broke squarely with the only federal appeals court to address the issue so far. In July, the U.S. Court of Appeals for the Fifth Circuit ruled in Khaled Asadi v. G.E. Energy (USA) that only individuals who blow the whistle directly to the SEC are shielded under Dodd-Frank.
As The National Law Journal‘s Jenna Greene has reported, the Fifth Circuit’s decision came as a bit of a surprise to many observers. The court’s interpretation of the Dodd-Frank whistle-blower provisions contradicted virtually every judge that had considered the issue—not to mention the SEC’s own rule. By our own count, before the summer federal judges in the Southern District of New York, the Middle District of Tennessee, the District of Connecticut and the District of Colorado found that Dodd-Frank’s whistle-blower provisions applied to individuals who didn’t contact the SEC. The lower court in Texas in the Asadi case was the exception.
Since then, federal courts have been pretty evenly split on the question. To support their motion to dismiss, Thomson Reuters’ lawyers at Satterlee Stephens Burke & Burke pointed to a recent decision in Colorado federal court that adopted the reasoning in Asadi. A judge in California also cited the Fifth Circuit’s ruling in September when partially dismissing a former employee’s lawsuit against Apple Inc.
For his part, Rosenblum’s lawyer, Philadelphia solo practitioner James McEldrew III, was able to point in his briefing to a decision by a federal judge in Massachusetts earlier this month that broke with the Fifth Circuit.
McEldrew declined to comment when we reached him on Monday.
James Rittinger at Satterlee Stephens, who represents Thomson Reuters, referred us to his client for comment. In a statement, a Thomson Reuters spokesman said the company was disappointed with the ruling and believes Rosenblum’s claims are “baseless.”