The U.S. Securities and Exchange Commission (“SEC”) is seeking to expand the definition of a corporate whistleblower to protect employees who report company wrongdoing through internal compliance programs.
The move comes in the form of an amicus brief filed by the SEC in the Siemens China Ltd. case. Brief for the Securities and Exchange Commission as Amicus Curiae Supporting Appellant, Meng-Lin Liu v. Siemens, A.G., 2014 WL 663875 (2d Cir. Feb. 20, 2014) (No. 13-4385). In this case, the company terminated a former compliance officer after he reported alleged compliance issues internally, and the employee only then reported the possible Foreign Corrupt Practices Act (“FCPA”) violations to the SEC. The employee subsequently brought an action in the U.S. District Court for the Southern District of New York against Siemens under the Anti-Retaliation Provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act claiming the illegal retaliation.
Siemens moved to dismiss on the ground that the employee did not qualify as a “whistleblower.” The company argued that the Dodd-Frank Anti-Retaliation Provision protects only employees who report to the SEC while employed. In this case, the plaintiff did not report to the SEC until after the company terminated him.
The district court granted Siemens’ motion to dismiss on the ground that the Anti-Retaliation Provision of the Dodd-Frank Act did not protect individuals outside of the United States. The district court did not rule on whether Dodd-Frank protects employees who report wrongdoing internally and wait until after termination to whistleblow to the SEC.
In its amicus brief to the Second Circuit, the SEC asserted that Dodd-Frank and SEC regulations protect whistleblowers whether they report to their employers or to the SEC directly. This interpretation, the SEC noted, encourages employees to report internally at their companies before reporting to the SEC. The commission further noted that it had previously adopted clarifying rules on retaliation which outline “three different categories of whistleblowers, and the third category includes individuals who report to persons or governmental authorities other than the Commission.”
The SEC acknowledged the Fifth Circuit’s reading of anti-retaliation provisions in Asadi v. G.E. Energy (USA), L.L.C., in which the court determined that “the whistleblower protection provision unambiguously requires individuals to provide information ... to the SEC to qualify for protection.” The commission noted, however, that the Fifth Circuit’s interpretation would have “no appreciable effect in deterring employers from taking adverse employment action for internal reports.” In contrast, the SEC’s more expansive interpretation furthered the objective of incentivizing individuals to report internally first.
The SEC amicus brief, while adverse to Siemens in this case, does not necessarily represent a position adverse to industry. A Siemens’ victory – while possibly true to the strict letter of the law – might well vindicate the company’s interests only in this case. In a future year, with a different employee, the company might well rue the day of any victory here when an employee – concerned about retaliation – scurries first to the SEC rather than the company’s internal reporting channel. But these issues are complex, the strategies difficult to choose, and the future implications impossible to predict. Saul Ewing’s White Collar and Government Enforcement Practice, with its eye on whistleblower issues, will keep you posted as this case unfolds.