A recent ruling from a federal judge in Illinois has added to the minority view in a significant split in court opinions over whether employees who report suspicions of securities violations by their employers through internal channels, and not to the Securities and Exchange Commission, are covered by the Dodd-Frank Act’s anti-retaliation protections.
The Northern District of Illinois held in Martensen v. Chicago Stock Exchange that a whistleblower who had reported his concerns internally to his employer but did not file an action with the SEC is not eligible for the anti-retaliation provisions of the Dodd-Frank Act. The employee in this case worked at the Chicago Stock Exchange and alleges he was fired in retaliation for reporting suspected securities law violations to his employer.
The majority of courts to consider the question have held that under those circumstances, whistleblower employees can avail themselves of the protection in Dodd-Frank. However, most of them have been federal district courts, whose opinions are typically not precedent setting. A federal district court issued the Martensen decision, too.
The few appeals courts that have considered the question are split. The Fifth Circuit Court of Appeals, in Asadi v. G.E. Energy, determined that whistleblowers must report to the SEC to be protected by Dodd-Frank. But both the Courts of Appeals for the Second and Ninth Circuits, in Berman v. Neo@Ogilvy LLC and Somers v. Digital Realty Trust, Inc., found the opposite to be true. They ruled that Dodd-Frank protects employees even when they only report to their employers and do not submit a tip to the SEC.
The SEC itself has weighed in on the subject by issuing guidance explaining that “an individual may qualify as a whistleblower for purposes of Section 21F’s employment retaliation protections irrespective of whether he or she has adhered to the reporting procedures specified in Rule 21F-9(a) [specifying that to be a “whistleblower” one must submit a tip to the SEC].” This guidance aligns the SEC’s view with that of the majority of courts in finding that whistleblowers who report internally should be protected from retaliation by the Act.
Employees and the SEC have pointed out that requiring employees to report externally to the SEC discourages them from using internal channels and deprives companies of a chance to address and fix issues without getting the SEC involved. In contrast, employers have sought a narrower interpretation of the law in a ploy to evade liability for retaliating against employees who voiced their concerns.
The Martensen court in its June 7 decision declined to consider the SEC’s guidance instructing that whistleblowers covered under Dodd-Frank include both those who only reported concerns internally to their employers as well as those who have filed claims with the SEC. The court looked only at the text of the Dodd-Frank Act, finding that the statute defines a whistleblower as one who provides information about a securities law violation “to the Commission.”
Finding this statutory language unambiguous, the court sided with a minority of other courts in holding that only when employees report to the SEC is protection under the Dodd-Frank Act invoked.
The SEC has successfully enforced their views on this matter in the past. The commission fined SandRidge Energy Inc. $1.4 million in 2016 in part for retaliating against an internal whistleblower who attempted to use internal channels to report the process used by SandRidge to calculate its publicly reported oil and gas reserves.
Because of the split among appeals courts, it is possible that the US Supreme Court will take up the issue. The Ninth Circuit’s Somers decision already has been appealed to the Supreme Court.
UPDATE: On June 26, the Supreme Court announced it will review the Ninth Circuit Court of Appeals’ decision in Somers v. Digital Realty Trust, Inc. during its upcoming term. In Somers, the Ninth Circuit ruled that the anti-retaliation provisions of Dodd-Frank apply to whistleblowers who report wrongdoing within their companies but not to the SEC.