In the wake of recent SEC pronouncements about huge numbers of whistleblower complaints in the pipeline, one of the most hotly contested issues under the Dodd-Frank Wall Street Reform and Consumer Protection Act “Dodd Frank Act”) has been the question of whether the Dodd Frank Act’s whistleblower anti-retaliation provision protects only those individuals who report wrongdoing directly to the U.S. Securities and Exchange Commission (“SEC”) or whether it also protects individuals who report their concerns only internally. In response to an outcry from business leaders that the Dodd Frank Act would eviscerate the internal reporting mechanisms they put into place in the wake of the Sarbanes-Oxley Act (SOX), the SEC has taken the position in its final rules implementing the Dodd Frank Act that the statute also protects individuals who report their concerns only internally. Three recent cases from the Northern District of California, the District of Colorado and the Fifth Circuit Court of Appeals (the only Circuit Court of Appeals to address the issue), however, have held otherwise.
On February 20, 2014, the SEC weighed in on this issue in an amicus brief it filed in the U.S. Court of Appeals for the Second Circuit. In Liu v. Siemens A.G., 13-4385, Men-Lin Liu alleges that his former employer, Siemens A.G., terminated his employment in retaliation for making internal disclosures regarding a corruption and kickback scheme he allegedly uncovered at the company. On appeal, Liu raised an issue that lured the SEC into filing its Amicus Brief, namely, whether the Dodd Frank Act’s anti-retaliation provision protects employees, regardless of whether they report information directly to the SEC or opt instead to report it internally.
In its Amicus Brief, the SEC argued that anyone who engages in the whistleblowing activities described in the Dodd Frank Act is protected by the Act, irrespective of whether the individual makes a separate report to the SEC. While the SEC’s position is good for public companies, because it encourages employees to report their concerns internally—thereby giving companies an opportunity to investigate their allegations and, if necessary, correct the problem without litigation—it is bad for companies once they are embroiled in litigation. Unlike SOX, the Dodd Frank Act entitles whistleblowers to automatic double damages, an expansive six- to ten-year statute of limitations, and a direct right of action in federal district court.