Needed: Broad Definition of ‘Whistleblower’ Under Dodd-Frank

By Pamela J. Bethel

Jordan A. Thomas, formerly a leading SEC attorney who was involved in developing the agency’s whistleblower program and now chairman of the whistleblower representation practice at Labaton Sucharow, as well as Vanessa De Simone, an associate in the firm’s whistleblower representation practice, recently wrote an important op-ed article in the National Law Journal.

The authors said that although the courts have not yet definitively decided the issue, it makes sense to treat people who report corporate wrongdoing internally, within their company, as whistleblowers and to grant them protection under the Dodd-Frank law and rules, in the same way as people who report wrongdoing to the SEC.

“Failing to treat internal reporting as protected conduct will compel many sophisticated employees with concerns about possible misconduct to bypass internal reporting mechanisms and go directly to the SEC,” they wrote. “After all, an employee who dutifully uses his or her company’s internal reporting channels can be demoted or fired without recourse under the Asadi rule [a case that limited protection to those who report to the SEC, not within the corporation], while an employee who immediately blows the whistle to the SEC regarding possible violations is both shielded from retaliation and eligible for a monetary award, all while retaining anonymity. This stark dichotomy seems very likely to cause a decline in internal reporting.”

The authors contend that this result cannot be consistent with what Congress intended.

We agree. We would also add that the concerted efforts in the courts by businesses to limit whistleblower protection to only those employees who formally report problems to government agencies like the SEC gives consumer advocacy groups and politicians bent on increasing regulatory oversight yet another indication that most companies’ announced efforts to encourage the reporting of fraud or other misbehavior are insincere.

Thus the impact for companies that engage in this fight may well be a world in which the company will have to fight more formal complaints, while at the same time being required to respond to even more stringent regulatory requirements.

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