The U.S. Securities and Exchange Commission today filed an amicus brief stressing that whistleblowers are entitled to the Dodd-Frank Act’s full protection against retaliation whether they report their employers’ wrongdoing internally or go straight to the agency.
In July, the U.S. Court of Appeals for the Fifth Circuit contradicted other courts that have considered the matter and the SEC’s own rules when a panel of judges held that employees are protected against retaliation only if they go to the SEC.
The same question is now before the Second Circuit. In a forceful amicus brief, the SEC came down on the side of businesses anxious to protect their painstakingly developed corporate compliance programs.
“The Commission’s whistleblower program both encourages whistleblowers to report wrongdoing and protects them when they do,” said Sean McKessy, who heads the SEC’s Office of the Whistleblower, in a written statement. “Today’s filing makes clear that under SEC rules, whistleblowers are entitled to protection regardless of whether they report wrongdoing to their employer or the Commission.”
In January 2013, Meng-Lin “Louis” Liu, who worked for a Siemens A.G. subsidiary in China as a compliance officer, sued the company in U.S. District Court for the Southern District of New York. He alleged that he was fired because he uncovered evidence of a kickback scheme in violation of the Foreign Corrupt Practices Act—wrongdoing that arose even after Siemens agreed to pay $1.6 billion in fines for violating the act in 2008.
“Siemens demoted, harassed, suspended and then discharged Liu because of his objections and complaints about violations of the FCPA,” states the complaint, penned by David Mair of Kaiser Saurborn & Mair.
Siemens, represented by Kirkland & Ellis partners Brant Bishop and Ragan Naresh, argued among other things that “as the Fifth Circuit recently held, Dodd-Frank protects only those who blow the whistle to the SEC—something Mr. Liu admits he did not do until months after the alleged retaliation.”
In July, the Fifth Circuit in Asadi v. G.E. Energy held that an employee who was fired after reporting suspected wrongdoing internally was not entitled to protection under the Dodd-Frank Act because he didn’t take his grievance directly to the SEC.
“The plain language of the Dodd-Frank whistleblower protection provision creates a private cause of action only for individuals who provide information relating to a violation of the securities laws to the SEC,” the court held. The employee, Khalid Asadi, was concerned that the company had improperly hired a woman to curry favor with a senior Iraqi official in negotiating a joint-venture agreement.
In Liu’s case, U.S. District Judge William Pauley III in New York sidestepped the issue of where wrongdoing must be reported. Instead, he dismissed the case in October because he found that Dodd-Frank’s antiretaliation provision did not apply to conduct overseas, especially here—a case involving a Taiwanese resident suing a German company for actions in China.
Still, Pauley touched on the reporting issue, writing that he found the Fifth Circuit’s decision “appealing in that it avoids rewriting the statute,” but that there “is no need for the Court to wade into this debate.”
On appeal, however, the Second Circuit might. The SEC weighed in with a 30-page amicus brief urging the court to hold that Dodd-Frank whistleblower protections apply “irrespective of whether the individual makes a separate report to the Commission,” according to the brief by SEC General Counsel Anne Small, Deputy General Counsel Michael Conley, Assistant General Counsel William Shirey and Senior Counsel Stephen Yoder.
“Throughout the rulemaking process, the Commission considered the ‘significant issue’ of how to ensure that the whistleblower program does not undermine the willingness of individuals to make whistleblower reports internally at their companies before they make reports to the Commission,” the SEC lawyers wrote. “The Commission’s final rules were carefully calibrated to achieve this objective by providing ‘strong incentives’ for individuals in appropriate circumstances to report internally in the first instance.” Whistleblowers may be entitled to receive a share of the penalty paid by the company, and those who report internally first can get a bonus under SEC rules.
In addition, the SEC lawyers said, “If the rule were invalidated, the Commission’s authority to pursue enforcement actions against employers that retaliate against individuals who report internally would be substantially weakened.”
Contact Jenna Greene at firstname.lastname@example.org.