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Whistleblowers protected only when reporting to SEC

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  • suesarkis2001
    Fifth Circuit Cuts Employers Out of Whistleblower Loop By _Jenna Greene_ (https://plus.google.com/105700559378297881972/about) The National Law Journal
    Message 1 of 1 , Jul 19, 2013
      Fifth Circuit Cuts Employers Out of Whistleblower Loop
      By _Jenna Greene_ (https://plus.google.com/105700559378297881972/about)
      The National Law Journal July 18, 2013

      Fifth Circuit Judge Jennifer Walker Elrod

      The U.S. Court of Appeals for the Fifth Circuit has ruled that would-be
      whistleblowers are protected from retaliation only if they report their
      employer's wrongdoing to the U.S. Securities and Exchange Commission —
      contradicting virtually every other court to consider the matter and the SEC's own

      Employees who report violations internally have no recourse under the
      Dodd-Frank Act if they are fired as a result, the court held in a _17-page
      ruling_ (http://legaltimes.typepad.com/files/whistle.pdf) that may undermine
      painstakingly developed corporate compliance programs.

      "We hold that 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,"
      Judge Jennifer Walker Elrod wrote, joined by Judge Stephen Higginson and
      U.S. District Judge Brian Jackson, sitting by designation from the Middle
      District of Louisiana.

      The suit was brought by Khalid Asadi, a former employee of G.E. Energy LLC
      who was fired after telling his supervisor and a company ombudsperson
      about a suspected violation of the Foreign Corrupt Practices Act.

      Asadi passed on concerns that the company had improperly hired a woman to
      curry favor with a senior Iraqi official in negotiating a joint venture
      agreement. As Asadi's source allegedly put it, GE was "pimping its way to the

      Soon after, Asadi, who was based in Jordan as GE's Iraq country executive,
      got a "surprisingly negative" performance review and subsequently was

      Because Asadi made his report internally rather than going to the SEC, the
      court held that he was not actually a whistleblower and dismissed his
      complaint for failure to state a claim.

      "The court's decision makes it very clear that an employee who uncovers
      serious wrongdoing of this type has very little protection from retaliation
      if that wrongdoing is not reported to the SEC," said Asadi's lawyer, Ronald
      Dupree of the Dupree Law Firm in Houston. "With respect to public policy,
      we argued and continue to believe that the anti-retaliation provisions of
      Dodd-Frank were intended to provide greater incentives to report wrongdoing,
      not less."

      GE was represented by Fulbright & Jaworski partners Linda Addison and
      Darryl Anderson. Addison, the firm's global head of dispute resolution and
      litigation, did not immediately respond to a request for comment.

      The court relied on a close reading of Section 922 of the Dodd-Frank Act,
      which defines a whistleblower as anyone who provides "information relating
      to a violation of the securities laws to the Commission," (emphasis by the
      court). "This definition, standing alone, expressly and unambiguously
      requires that an individual provide information to the SEC to qualify as a
      'whistleblower,' " the court held.

      Where it gets trickier is in subsection (h), which outlines the
      whistleblower protections. The law says that employers can't fire a whistleblower for
      providing information to the SEC, aiding the SEC or "making disclosures
      that are required or protected" under certain provisions of the
      Sarbanes-Oxley Act of 2002, the Securities Act of 1934 or "any other law, rule or
      regulation subject to the jurisdiction of the Commission."

      Asadi's lawyer argued that this third provision covers people even if they
      don't interact directly with the SEC. Three other federal courts — the
      Southern District of New York, the Middle District of Tennessee and the
      District of Connecticut — that have considered the question reached that
      conclusion. The Southern District of Texas, where Asadi's case originated,
      dismissed his suit by ruling that whistleblower protection does not apply overseas,
      a finding that the Fifth Circuit did not discuss.

      As for the SEC, the agency in its whistleblower regulations implementing
      Dodd-Frank extended anti-retaliation protection to people who did not report
      information to the agency, as long as the activity was protected under the
      other laws specified.

      According to the Fifth Circuit, the SEC got it wrong. "We must reject the
      SEC's expansive interpretation of the term 'whistleblower,' " Elrod wrote,
      concluding that "Congress specified that a 'whistleblower,' not merely any
      individual, is protected from employer retaliation."

      Employees who don't go to the SEC may still be protected under the
      Sarbanes-Oxley Act, but the court recognized that those provisions are less
      appealing. Sarbanes-Oxley limits monetary damages to back pay (Dodd-Frank allows
      two times back pay); complaints must be filed first with the secretary of
      Labor; and the law's statute of limitations is much shorter than

      The Fifth Circuit decision would appear to give employees planning to a
      report a securities law violation a clear incentive to skip internal
      disclosure and go straight to the SEC. But it's a scenario that even some SEC
      commissioners have viewed as less than optimal, particularly given the time and
      money expended by many companies to set up internal programs in light of

      Commissioner Troy Paredas noted the problem during a November 3, 2010, SEC
      meeting. "What will be the net impact on corporate conduct and legal
      compliance if individuals bypass a corporation's internal procedures for
      identifying, investigating and sanctioning unlawful activity in favor of reporting
      alleged violations to the SEC?" he said. "It would be unfortunate if, as
      result of the Dodd-Frank whistleblower program, effective corporate
      compliance programs were thwarted."

      Contact Jenna Greene at jgreene@....

      Read more:

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