Second Circuit Rules Whistleblowers Protected Without Reporting to SEC

Case: Berman v. Neo@Ogilvy LLC

Issue: Whether a whistleblower must report corporate misconduct to the U.S. Securities and Exchange Commission (SEC) to be eligible for anti-retaliation protections under the Dodd-Frank Act.

Case Summary: In a 2-1 decision, the Second Circuit ruled that a whistleblower does not have to report corporate misconduct to the SEC to be eligible for anti-retaliation protections under the Dodd-Frank Act.

Daniel Berman, the former finance director of Neo&Ogilvy LLC (Ogilvy), brought the anti-retaliation suit alleging that he was wrongfully terminated after internally reporting accounting fraud in violation of whistleblower protection provisions of Section 21(F) of the Dodd-Frank Act. Berman did not report the alleged unlawful activity to the SEC until after his employment was terminated.

The New York district court dismissed the suit, concluding that the anti-retaliation provisions only protect employees discharged for reporting violations to the SEC rather than reporting violations internally.

On appeal, the Second Circuit reversed, holding that because Section 21(F) is ambiguous, the court must defer to the SEC’s interpretative guidance that Dodd-Frank protects internal whistleblowers. The Court explained that the anti-retaliation provisions were ambiguous because Section 21F(a)(6) of the Exchange Act, which requires a covered whistleblower to report a violation of securities laws to the SEC, created tension with Section 21F(h)(1)(A)(iii), which protects individuals who make internal reporting disclosures protected under the Sarbanes Oxley Act (SOX). The Court remanded to the district court for further proceedings.

In dissent, Judge Dennis Jacobs wrote that the majority and the SEC “altered a federal statute” and changed the Dodd-Frank definition of a whistleblower.

Bottom Line: The decision creates a circuit split with the Fifth Circuit, which previously held that a whistleblower could not bring an anti-retaliation suit under Dodd-Frank against his employer because he did not report the alleged misconduct to the SEC first.

About Thomas Pinder

Thomas Pinder
Thomas Pinder is senior vice president and senior counsel for litigation in the office of ABA's general counsel.