The Court of Appeals holds that the Dodd-Frank whistleblower law protects employees who report securities violations internally. This case exposes an inter-Circuit conflict that will certainly end up in the Supreme Court.
The case is Berman v. Neo@Ogilvy, LLC, decided on September 10. In 2002, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act. It says that Wall Street whistleblowers cannot suffer retaliation if they report violations to the Securities and Exchange Commission. But the statute also says extends retaliation protections for people who "make disclosures that are required or protected under the Sarbanes-Oxley Act of 2002." We'll call that subdivision (iii)). Under that Act, Wall Street honchos cannot retaliate against employees who report securities violations internally, i.e., to their supervisors. Since Berman only reported violations internally and not to the SEC, if Dodd-Frank only protects whistleblowers who report violations to the SEC, then Berman cannot sue his employer for retaliation. The issue is whether Dodd-Frank also protects internal whistleblowers.
Recognizing the statute has an ambiguity that Congress may not have intended, the Court of Appeals (Sack and Calabresi) defers to the regulations created by the SEC, which says Dodd-Frank covers people who only report violations internally. Under Chevron deference principles, which provide that courts must defer to administrative agency interpretations of ambiguous statutes, the Court of Appeals accepts the SEC's regulation as reasonable. It does so for these reasons:
First, there will be very few employees who simultaneously report securities violations both internally and externally, to the SEC, as some will think that reporting them internally will be enough. Second, some whistleblowers must report their concerns internally before going to the SEC, including auditors and attorneys. "Apart from the rare example of simultaneous (or nearly simultaneous) reporting of wrongdoing to an employer and to the Commission, there would be virtually no situation where an SEC reporting requirement would leave subdivision (iii) with any scope."
Judge Jacobs dissents, siding with the courts that have more narrowly interpreted Dodd-Frank. He notes that whistleblowers in certain circumstances are still protected under Sarbanes-Oxley.