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New Jersey Whistleblower Developments: Internal Disclosures and the Dodd-Frank Debate

Whistleblower Protections Under the Dodd-Frank Act: A Legal Perspective

Currently, authority is split concerning whether the Dodd-Frank Act protects whistleblowers when making internal disclosures of potential securities law violations. Last year, a case out of the Fifth Circuit, Asadi v. G.E. Energy, held that Dodd-Frank’s protections have limited whistleblowers from disclosing information to the SEC. In contrast, several other courts have held otherwise, i.e. that Dodd-Frank protects internal disclosures.

The New Jersey Court's Stand on Internal Reporting

In March, 2014, a New Jersey court held that internal reporting is protected under the Dodd-Frank Act (Khazin v. TD Ameritrade). The court reasoned that the definition of protected whistleblowing under the Act includes those who report potential violations to a supervisor — and not merely to the SEC.

The Khazin court mentioned the Asadi holding (whistleblower protection only for disclosures to the SEC); however, it also pointed out that several courts have held that Dodd-Frank protects internal disclosures.

The Courts' and SEC's Interpretation of Dodd-Frank

Frankly, most courts have determined Dodd-Frank’s whistleblower protection is ambiguous. The courts, in turn, have looked to the SEC’s comments to the Dodd-Frank Act. For example, the SEC has commented, “Congress intended that an employee terminated for reporting Sarbanes-Oxley violations to a supervisor or an outside compliance officer, and ultimately to the SEC, have a private right of action under Dodd-Frank whether or not the employer wins the race to the SEC’s door with a termination notice”

A handful of New Jersey district courts have agreed that the anti-retaliation protections that come through Dodd-Frank apply to individuals protected by the Sarbanes-Oxley Act — whether the disclosures were made to the SEC directly, or internally.

SEC’s Amicus Brief and Potential Supreme Court Decision

Because of its interest in the issue, the SEC recently filed an amicus brief in the Second Circuit that argued in favor of a broad interpretation of the Sarbanes-Oxley Act. If the authority remains split, the Supreme Court may ultimately need to decide the issue.

How We Can Help

If you or someone you know has experienced whistleblower retaliation, our New York and New Jersey whistleblower lawyers can help you. Contact us for a free consultation with Mr. Zidziunas.

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