COMMENT SHELTER FROM THE RETALIATION STORM

Transcription

1 COMMENT SHELTER FROM THE RETALIATION STORM TABLE OF CONTENTS I. INTRODUCTION II. A HISTORY OF WHISTLEBLOWER ANTI-RETALIATION LEGISLATION A. The False Claims Act B. The Sarbanes-Oxley Act of 2002 and Other Whistleblower Anti-Retaliation Legislation III. THE DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT A. Origins B. The Anti-Retaliation and Whistleblower Definition Provisions Tension Within Section 78u-6(a) Tension Across the Dodd-Frank Act C. SEC Regulations IV. THE EMERGING DIVIDE A. Asadi v. G.E. Energy (USA), L.L.C B. Pre-Asadi Case Law C. Post-Asadi Case Law D. Where the SEC and the Courts Stand This Comment received the Winston & Strawn LLP Award for Best Comment in the Area of Business Litigation. I would like to give special thanks to the following people: my father and mother, Eddie and Dianna Mouret, for instilling in me the importance of integrity and determination; my sister, Keagan Mouret, for the love and laughs; Veronica Cruz for always being there; the Editors of the Houston Law Review for their excellent editorial assistance in preparing this Comment for publication; and, finally, Bo Schwerin for teaching me the meaning of onwards and upwards. 1529

2 1530 HOUSTON LAW REVIEW [52:5 V. THE IMPLICATIONS OF ASADI AND PROPOSED SOLUTIONS A. The Implications Employees Employers The SEC and the Federal Courts B. Proposed Solutions Judicially Created Implied Exception Congressional Action by Amendment VI. CONCLUSION I. INTRODUCTION In today s financial world, an employee suspicious of employer misconduct or fraud can occur in any work environment. 1 When confronted with that dilemma, an employee must decide whether to report the suspected violation and risk termination, or remain silent. 2 Current federal laws aim to alleviate this risk by providing whistleblower anti-retaliation relief to employees. 3 The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) was enacted to promote accountability and transparency in the financial system among many other things. 4 Since the Dodd-Frank Act s passage, courts have struggled to interpret who is entitled to whistleblower protection in employer retaliation claims under Section 922 of the Dodd-Frank Act See Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620, 621 (5th Cir. 2013) (illustrating that the plaintiff-employee, Asadi, faced a decision on whether to report the defendant-employer, G.E. Energy, for a potential Foreign Corrupt Practices Act violation). 2. See id. 3. Dodd-Frank Wall Street Reform and Consumer Protection Act, 15 U.S.C. 78u-6(a)(6), (h)(1)(a) (2012). 4. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No , 124 Stat (2010) [hereinafter the Dodd-Frank Act] (codified as amended in scattered titles of the U.S.C.). 5. Compare Asadi, 720 F.3d at 630 ( We conclude that the plain language of 78u-6 limits protection under the Dodd-Frank whistleblower-protection provision to those individuals who provide information relating to a violation of the securities laws to the SEC. (quoting 15 U.S.C. 78u-6(a)(6))), and Banko v. Apple Inc., 20 F. Supp. 3d 749, 756 (N.D. Cal. 2013) (interpreting whistleblower protection under Section 78u-6(h) to extend to only to those individuals who report to the SEC), with Rosenblum v. Thomson Reuters (Mkts.) LLC, 984 F. Supp. 2d 141, (S.D.N.Y. 2013) (finding that an individual is not necessarily required to report to the SEC to receive whistleblower protection under the Anti-Retaliation Provision), and Genberg v. Porter, 935 F. Supp. 2d 1094, (D. Colo. 2013) (holding that an individual may qualify as a whistleblower under Section 78u-6(h)(1)(A)(iii) despite not reporting to the SEC), aff d in part, dismissed in part, 566 F. App x 719 (10th Cir. 2014), and Egan v. TradingScreen, Inc., No. 10 Civ. 8202(LBS), 2011 WL , at *5 (S.D.N.Y. May 4, 2011) (holding that an individual need not report to the SEC if the claim falls under Section 78u-6(h)(1)(A)(iii)).

3 2015] SHELTER FROM THE RETALIATION STORM 1531 Section 922 of the Dodd-Frank Act amended the Securities Exchange Act of 1934 to provide whistleblower protection by prohibiting employer retaliation to individuals who (i) report securities violations to the Securities and Exchange Commission (SEC); or (ii) make disclosures required by (a) the Sarbanes-Oxley Act; (b) the Securities Exchange Act; and (c) any law or rule within the SEC s jurisdiction. 6 By virtue of its plain language, this provision, hereinafter the Anti-Retaliation Provision, arguably does not require an individual to report securities violations to the SEC. 7 However, the provision defining whistleblower, hereinafter the Whistleblower Definition, does contain such a requirement. 8 Therefore, the Anti-Retaliation Provision and the Whistleblower Definition of the Dodd-Frank Act conflict with one another and raise an important issue: whether an employee can report violations blow[] the whistle 9 to the SEC or to the employer to receive anti-retaliation protection. 10 The Fifth Circuit recently addressed this issue, making it the first and only appellate court to do so. 11 In creating a tension with federal district courts around the country, 12 the Fifth Circuit recently ruled in Asadi v. G.E. Energy (USA), 6. Dodd-Frank Act 922, 124 Stat. at (codified as amended at 15 U.S.C. 78u-6(h)). 7. Id. 8. Id. at 1842 (codified as amended at 15 U.S.C. 78u-6(a)(6)). 9. Joel D. Hesch, Breaking the Siege: Restoring Equity and Statutory Intent to the Process of Determining Qui Tam Relator Awards Under the False Claims Act, 29 T.M. COOLEY L. REV. 217, (2012) ( A whistleblower generally means someone who, believing that the public interest overrides the interest of the organization he serves, publicly blows the whistle if the organization is involved in corrupt, illegal, fraudulent, or harmful activity. (quoting Publisher s Preface to WHISTLE BLOWING: THE REPORT OF THE CONFERENCE ON PROFESSIONAL RESPONSIBILITY, at vii (Ralph Nader et al. eds., 1972)) (internal quotation marks omitted)). 10. See Genberg, 935 F. Supp. 2d at (construing the Anti-Retaliation Provision to be in direct conflict with the Whistleblower Definition provision because [the Anti-Retaliation Provision] provides protection to persons who have not disclosed information to the SEC ); Egan, 2011 WL , at *5 (acknowledging that the Anti-Retaliation Provision and the Whistleblower Definition are contradictory provisions ). 11. See Banko v. Apple Inc., 20 F. Supp. 3d 749, (N.D. Cal. 2013) (noting that only the Fifth Circuit and small number of federal district courts have addressed this specific issue). 12. See Genberg, 935 F. Supp. 2d at (holding that an individual reporting to the SEC is not necessarily a requirement); Nollner v. S. Baptist Convention, Inc., 852 F. Supp. 2d 986, (M.D. Tenn. 2012) (concluding that Section 78u-6(h)(1)(A)(iii) does not obligate an individual to report to the SEC); Egan, 2011 WL , at *7 ( [T]he anti-retaliation whistleblower protection provisions of the Dodd-Frank Act require [the individual] to show that he either provided information to the SEC, or that his disclosures fell under the four categories listed in 15 U.S.C. 78u-6(h)(1)(A)(iii). ).

4 1532 HOUSTON LAW REVIEW [52:5 L.L.C. that an employee would not qualify as a whistleblower under the Anti-Retaliation Provision of the Dodd-Frank Act unless the employee reported to the SEC. 13 The Asadi holding ignores the conflicting codified provisions of Section 78u-6(a)(6) the Whistleblower Definition and Section 78u-6(h)(1)(A) the Anti-Retaliation Provision by opting for a plain language interpretation. 14 Asadi paves the way for future denials of whistleblower protection in retaliation suits brought by employees who report employer misconduct or alleged violations to their employer. 15 Considering the holdings of several federal district courts, interpretations by the SEC, and the underlying purpose of the Dodd-Frank Act, the Fifth Circuit s interpretation not only diverges from those views but also refuses to recognize the friction within Section 78u This Comment contends that whistleblower protection under the Anti-Retaliation Provision of the Dodd-Frank Act should extend to employees regardless of whether they report to the SEC or to their employer. Further, this Comment proposes two solutions that would entitle an employee to whistleblower protection in antiretaliation suits even if the employee reports a violation internally. The first proposed solution is to interpret the third prong of the Anti-Retaliation Provision, Section 78u-6(h)(1)(A), as an implied exception to the Whistleblower Definition. The second proposed solution is to amend Section 78u-6 by (1) expanding the Whistleblower Definition to reach employees who report to the SEC or to the employer; or (2) rephrasing the protections under the Anti-Retaliation Provision as an express exception to the Whistleblower Definition. Either solution will grant whistleblower protection to individuals bringing retaliation actions regardless of whether the individual reports to the SEC or their employer. 17 Part II of this Comment will discuss the background and history of various whistleblower and anti-retaliation protections. Parts III and IV will examine the Dodd-Frank Act and recent federal court interpretations of the issue, respectively. Part V 13. Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620, 630 (5th Cir. 2013). 14. See id. (interpreting the definition of whistleblower to be unambiguous and finding that the plain language of the statute governs). 15. See id. (creating a strict view of the statutory language that will eliminate whistleblower protections). 16. See discussion infra Parts III V (analyzing the Dodd-Frank Act, the rift between the Fifth Circuit and various federal district courts, and the implications of Asadi). 17. See discussion infra Part V.B (resolving the statutory interpretation issue in a way to bring internal-whistleblowing under the anti-retaliation umbrella).

5 2015] SHELTER FROM THE RETALIATION STORM 1533 will analyze the implications of the developing divide among federal courts and what their interpretations could mean for various stakeholders. Part V will also propose two possible solutions that could resolve the tension between the Anti-Retaliation Provision and the Whistleblower Definition of the Dodd-Frank Act. II. A HISTORY OF WHISTLEBLOWER ANTI-RETALIATION LEGISLATION A. The False Claims Act Whistleblowers have been safeguarded by federal legislation since the days of the Civil War. 18 In 1863, Congress passed the original False Claims Act, which permitted an individual to report contract fraud committed against the government. 19 Specifically, the False Claims Act of 1863 incentivized individuals to assert rights on behalf of the government in what are commonly referred to as qui tam suits. 20 The whistleblower was rewarded with a bounty, which was paid from the recovery funds of a successful qui tam suit. 21 Like many subsequent whistleblower protection statutes passed with the purpose of preventing and catching a variety of fraudulent activities, 22 the False Claims Act was intended to reach all types of fraud, without qualification, that might result in financial loss to the Government. 23 Over a period of one hundred years, the False Claims Act came to be viewed as a toothless piece of legislation because its primary goal battling fraud against the government was unsuccessful. 24 After many years of obsolescence, the 18. False Claims Act, ch. 67, 12 Stat. 696 (1863) (codified as amended at 31 U.S.C (2012)); Scott L. Silver & Janine D. Garlitz, SEC Whistleblower Incentives Under the Dodd-Frank Wall Street Reform Act, 18 PIABA B.J. 169, 171 (2011). 19. Silver & Garlitz, supra note 18, at FREDERICK D. LIPMAN, WHISTLEBLOWERS: INCENTIVES, DISINCENTIVES, AND PROTECTION STRATEGIES 141 (2012). 21. See id. (describing the origins of the False Claims Act). 22. See discussion infra Part II.B (noting the purposes of the Sarbanes-Oxley Act and other miscellaneous whistleblower protection legislation). 23. United States v. Neifert-White Co., 390 U.S. 228, 232 (1968). 24. See False Claims Act Amendments: Hearings Before the Subcomm. on Admin. Law & Governmental Relations of the H. Comm. on the Judiciary, 99th Cong. 291 (1986) (statement of Rep. Fortney H. (Pete) Stark) ( The bill became essentially inoperative through a series of court decisions which held that no one could bring a qui tam action on the basis of information already in the hands of the government and in this day and age, that is arguably ALL information! ).

6 1534 HOUSTON LAW REVIEW [52:5 False Claims Act received a breath of new life: the 1986 Amendment. 25 The 1986 Amendment gave teeth to the False Claims Act by adding, for the first time, an anti-retaliation provision. 26 The antiretaliation provision entitled a whistleblower-employee to all relief necessary to make the employee whole. 27 The anti-retaliation provision was further amended in 2009, as part of the Fraud Enforcement and Recovery Act, 28 and again in 2010, under the Dodd- Frank Act. 29 After numerous transformations, the anti-retaliation provision of the False Claims Act in its current form states: Any employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor, or agent whole, if that employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts done by the employee, contractor, agent or associated others in furtherance of an action under this section or other efforts to stop 1 or more violations of this subchapter. 30 The anti-retaliation provision of the False Claims Act offers relief to individuals by encompassing several categories of protected individuals, 31 as long as the individual has a potential False Claims Act claim. 32 Furthermore, as mentioned above, 33 the broad antiretaliation provision grants whistleblowers make whole relief: restoration to their original employment and financial status False Claims Amendments Act of 1986, Pub. L. No , 100 Stat (codified as amended at 31 U.S.C (2012)). 26. See id. 4, 100 Stat. at See id. ( Such relief shall include reinstatement with the same seniority status... 2 times the amount of back pay, interest on the back pay, and compensation for any special damages.... ); JAMES B. HELMER, JR., FALSE CLAIMS ACT: WHISTLEBLOWER LITIGATION (6th ed. 2012) ( Congress heard testimony from both whistleblowers and their counsel regarding the need not only to encourage citizens with knowledge to come forward, but also to protect them if they do so. ). 28. Fraud Enforcement and Recovery Act of 2009, Pub. L. No , 4(d), 123 Stat. 1617, 1621, (codified as amended at 31 U.S.C. 3730(h)). 29. Dodd-Frank Act, Pub. L. No , 1079A, 124 Stat. 1376, 2079 (2010) (codified as amended at 31 U.S.C. 3730(h)). 30. False Claims Act, 31 U.S.C. 3730(h)(1). 31. See id. (stating that [a]ny employee, contractor, or agent comes under the umbrella of the anti-retaliation provision). 32. See HELMER, supra note 27, at 152 (noting that whistleblowers do not have to file an action under False Claims Act to receive anti-retaliation protection under Section 3730(h)). 33. See supra note 27 and accompanying text (describing the specific remedies that a whistleblower receives). 34. See 31 U.S.C. 3730(h)(1) (2) (describing the types of relief whistleblowers receive under the anti-retaliation provision of the False Claim Act); HELMER, supra note

7 2015] SHELTER FROM THE RETALIATION STORM 1535 In sum, the False Claims Act has undergone several alterations, including the notable addition of the anti-retaliation provision. 35 The alterations were aimed to ensure that whistleblower protections were expansive enough to effectuate the overarching purpose of preventing fraud against the government. 36 As time and society have progressed, Congress has passed whistleblower anti-retaliation protections in other areas of the law as well. B. The Sarbanes-Oxley Act of 2002 and Other Whistleblower Anti-Retaliation Legislation Due in large part to the debacles of Enron and WorldCom, 37 Congress enacted the Sarbanes-Oxley Act of 2002 [t]o protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws. 38 More specifically, Congress devised the Sarbanes-Oxley Act to incentivize corporate employees to report inside information about potential securities fraud to their employers. 39 The anti-retaliation provision of the Sarbanes-Oxley Act is noteworthy because Congress did not previously afford such protections to whistleblowers reporting securities violations. 40 The Sarbanes-Oxley anti-retaliation provision is designed to safeguard employees of publicly traded companies from employer retaliation whether they report to a federal agency, Congress, or to the 27, at 152 (asserting that the make whole damages afforded to whistleblowers strengthen the anti-retaliation provision). 35. Compare False Claims Act, ch. 67, 12 Stat. 696 (1863) (codified as amended at 31 U.S.C (1988)) (the original False Claims Act, which did not contain an anti-retaliation provision), with 31 U.S.C (2012) (the current False Claim Act, which does contain an anti-retaliation provision). 36. See False Claims Act Amendments: Hearings Before the Subcomm. on Admin. Law & Governmental Relations of the H. Comm. on the Judiciary, supra note 24, at 95 (statement by Rep. Howard L. Berman) (addressing the necessity of additional whistleblower protections under the then-existing version of the False Claims Act). 37. See LIPMAN, supra note 20, at (describing the accounting scandals of Enron and WorldCom, which eventually led to each company s bankruptcy); Chris W. Haaf & Monica C. Platt, 2011 Sees Focus on Whistleblowing and Dodd- Frank Claims, A.B.A.: BUS. L. TODAY 1 (Jan. 2012), available at ( Congress enacted Sarbanes-Oxley in 2002 in part as a response to a culture that discouraged employees from reporting fraudulent behavior, whether internally or to federal authorities. ). 38. Sarbanes-Oxley Act of 2002, Pub. L. No , 116 Stat. 745 (codified as amended in scattered titles of the U.S.C.). 39. MICHAEL L. SEIGEL, WHITE COLLAR CRIME: LAW, PROCEDURE, THEORY, PRACTICE (2011). 40. Silver & Garlitz, supra note 18, at 171.

8 1536 HOUSTON LAW REVIEW [52:5 employer. 41 Section 1514A, in relevant part, states that national ratings organizations and companies registered or required to report under the Securities Exchange Act of 1934 may not: discharge, demote, suspend, threaten, harass, or... discriminate against an employee... because of any lawful act done by the employee (1) to provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation... when the information... is provided to or the investigation is conducted by (A) a Federal regulatory or law enforcement agency; (B) any Member of Congress or any committee of Congress; or (C) a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct) Under Section 1514A, whistleblowers are given two methods of enforcing the retaliation discrimination provision. 43 Whistleblowers may either report to the Secretary of Labor or file a private right of action in the event the Secretary of Labor fails to make a decision within 180 days of filing of the complaint. 44 Whistleblowers are entitled to be made whole again if successful in their antiretaliation lawsuits. 45 Although the Sarbanes-Oxley Act has been criticized on various levels, 46 it was passed with the objectives of preventing securities fraud and protect[ing] investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws Sarbanes-Oxley Act of 2002, 18 U.S.C. 1514A(a)(1). 42. Id. (emphasis added); see also Barker v. UBS AG, No. 3:09-cv-2084 (CFD), 2011 WL , at *2 (D. Conn. Jan. 26, 2011) ( The whistleblower provision of the Sarbanes-Oxley Act provides employees of publicly traded companies with whistleblower protection, prohibiting employers from terminating, or otherwise retaliating against, such employees when they report potentially unlawful conduct that has occurred or is in progress. (quoting Welch v. Chao, 536 F.3d 269, 275 (4th Cir. 2008)) (internal citations omitted)) U.S.C. 1514A(b)(1). 44. Id.; Jon O. Shimabukuro, L. Paige Whitaker & Emily E. Roberts, Survey of Federal Whistleblower and Anti-Retaliation Laws, CORNELL U. ILR SCH., DIGITALCOMMONS@ILR (Apr. 22, 2013), /viewcontent.cgi?article=2144&context=key_workplace U.S.C. 1514A(c). 46. See John F. Fatino, The Sarbanes-Oxley Act of 2002 and the New Prohibition on Employer Retaliation Against Whistleblowers: For Whom the Bell Tolls or Tooting One s Own Horn?, 51 S.D. L. REV. 450, (2006) (discussing how some critics believe the anti-retaliation provision opens the door to abuse by employees who are tooting [their] own horn ). 47. See Sarbanes-Oxley Act of 2002, Pub. L. No , 116 Stat. 745, 745 (codified as amended at 15 U.S.C (2012)) (stating the overall aim of the

9 2015] SHELTER FROM THE RETALIATION STORM 1537 In addition to the False Claims Act and the Sarbanes-Oxley Act, the United States has a rich history of legislation that has protected whistleblowers in reporting illegal activities from subsequent employer retaliation. 48 For example, the Clean Water Act of 1972, a major piece of environmental legislation, provides whistleblower protection against employer retaliation. 49 Other examples of federal legislation containing similar whistleblower protections include the American Recovery and Reinvestment Act of and the Pipeline Safety Improvement Act of One of the newest additions to whistleblower and anti-retaliation federal legislation is Section 922 of the Dodd-Frank Act. 52 The scope of this particular anti-retaliation provision has recently been called into question by a federal court of appeals for the first time. 53 With the emergence of this divide, this Comment will analyze the past and present treatment of the Dodd-Frank Act s Anti-Retaliation Provision and Whistleblower Definition to provide a framework for its future use. Sarbanes-Oxley Act); H.R. REP. NO , at (2002) (detailing the purposes and intent of the proposed legislation). 48. See Silver & Garlitz, supra note 18, at (discussing the history of prominent whistleblower legislation from the Civil War to current times, such as the Clean Water Act of 1972, the Surface Transportation Assistance Act of 1982, and the Sarbanes-Oxley Act). 49. Clean Water Act, 33 U.S.C (discussing the broad scope of the legislation and its goal of restoring and maintaining the integrity of the country s waters); id. 1367(a) (prohibiting an employer from firing an employee for instituting a proceeding under the Clean Water Act); see LIPMAN, supra note 20, at 185 (noting the Clean Water Act as [t]he first U.S. environmental law to include an employee protection ). 50. American Recovery and Reinvestment Act of 2009, Pub. L. No , 1553(a), 123 Stat. 115, Pipeline Safety Improvement Act of 2002, 49 U.S.C (a)(1) (providing anti-retaliation protection if an employee reports pipeline safety violations to employer or government). 52. Dodd-Frank Act, Pub. L. No , 922, 124 Stat. 1376, (2010) (codified as amended at 15 U.S.C. 78u-6). 53. See Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620, 630 (5th Cir. 2013) (holding that to qualify as a whistleblower and to receive protection under the Anti-Retaliation Provision of the Dodd-Frank Act, an individual must report to the Securities and Exchange Commission); Legal Alert: Fifth Circuit Creates Split on Scope of Retaliation Protection for Whistleblowers Under Dodd-Frank, SUTHERLAND (Aug. 6, 2013), -Fifth-Circuit-Creates-Split-on-Scope-of-Retaliation-Protection-for-Whistleblowers-Under -Dodd-Frank (noting the Fifth Circuit entered the fray by creating a split with federal district courts on the Anti-Retaliation Provision).

10 1538 HOUSTON LAW REVIEW [52:5 III. THE DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT A. Origins In 2008, the United States witnessed a financial calamity that resulted from numerous causes. 54 The financial downturn had a rippling effect on many sectors of the economy and society. 55 Strong feelings of mistrust began to grow as many factions began to view the financial crisis as a product of a broken financial regulatory system. 56 As a response to this escalating feeling and the ensuing financial meltdown, Congress passed the Dodd-Frank Act on July 21, The Dodd-Frank Act aims [t]o promote the financial stability of the United States by improving accountability and transparency in the financial system, to end too big to fail, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes. 58 Setting forth such goals, the Dodd-Frank Act is one of the broadest sweeping pieces of financial reform legislation in the history of the United States See Brian J.M. Quinn, The Failure of Private Ordering and the Financial Crisis of 2008, 5 N.Y.U. J.L. & BUS. 549, 555 (2009) (attributing the financial crisis of 2008 to three main causes: liberalization and self-regulation of financial markets ; low interest rates; and the erroneous assumption that asset prices would not decline ). 55. See Wall Street Reform: The Dodd-Frank Act, WHITE HOUSE, house.gov/economy/middle-class/dodd-frank-wall-street-reform (last visited Apr. 15, 2014) (reporting that the financial crisis of 2008 left millions of Americans unemployed and resulted in trillions in lost wealth ). 56. Id.; see Binyamin Appelbaum & David M. Herszenhorn, Congress Passes Major Overhaul of Finance Rules, N.Y. TIMES, July 16, 2010, at A1 (stating that the passage of the Dodd-Frank Act was due in large part to marketplace skepticism and decades of government idleness). 57. Dodd-Frank Act, Pub. L. No , 124 Stat (2010) (codified as amended in scattered titles of the U.S.C.). 58. Id. at 1376; see H.R. REP. NO , at 870 (2010) (Conf. Rep.) (setting forth the objectives of the Dodd-Frank Act, such as general regulatory reform, enhanced consumer and investor safeguards, and financial product regulation); Brady Dennis, Financial Regulation Moves into New Era: Senate Passes Landmark Bill in Triumph for Obama, WASH. POST, July 16, 2010, at A1 (quoting Senator Christopher J. Dodd sponsor of the Dodd-Frank Act as stating that his objective of getting the bill passed was to create a structure and an architecture reflective of the 21st century in which we live, but also one that would rebuild that trust and confidence ). 59. See Statement by President Barack Obama Upon Signing H.R. 4173, Act of July 21, 2010, Pub. L. No , 2010 U.S.C.C.A.N. S26, available at WL (referring to the Dodd-Frank Act as the strongest consumer financial protections in history ); Wall Street Reform: The Dodd-Frank Act, supra note 55 (stating that the Dodd-Frank Act will prevent the conduct that led to the recession); Silver & Garlitz, supra note 18, at 169 (claiming the Wall Street reform to be the most important in contemporary times).

11 2015] SHELTER FROM THE RETALIATION STORM 1539 B. The Anti-Retaliation and Whistleblower Definition Provisions 1. Tension Within Section 78u-6(a). Although the Dodd-Frank Act touches on many different financial sectors and areas of law, 60 this Comment focuses on two provisions: the Whistleblower Definition provision, Section 78u-6(a)(6), and the Anti-Retaliation Provision, Section 78u-6(h)(1)(A). 61 Both of these provisions are found in Section 78u-6, which provides securities whistleblower incentives and protections. 62 Section 78u-6(a)(6) defines whistleblower as any individual who provides... information relating to a violation of the securities laws to the [Securities and Exchange] Commission, in a manner established, by rule or regulation, by the [Securities and Exchange] Commission. 63 The second provision at issue, Section 78u-6(h)(1)(A), grants whistleblowers protection against employer retaliation and states in relevant part that employers cannot: [D]ischarge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower (i) in providing information to the Commission in accordance with this section; (ii) in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information; or (iii) in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C et seq.), this chapter, including section 78j 1(m) of this title, section 1513(e) of title 18, and any other law, rule, or regulation subject to the jurisdiction of the Commission. 64 The plain words of the Anti-Retaliation Provision seemingly give the individual the option of reporting externally or internally, so long as the individual falls within the third prong See generally Dodd-Frank Act, Pub. L. No , 124 Stat (covering regulation of hedge funds, insurance, bank and savings associations, securities, commodities, etc.). 61. Dodd-Frank Act, 15 U.S.C. 78u-6 (2012). 62. Id. 63. Id. 78u-6(a)(6) (emphasis added); see Dodd-Frank Act, 12 U.S.C. 5301(5) (defining Commission as the Securities and Exchange Commission) U.S.C. 78u-6(h)(1)(A) (emphasis added). 65. Id.; see Haaf & Platt, supra note 37, at 2 ( On its face, the statute does not require that these disclosures be made directly to the SEC. ); Gregory C. Keating & Stephen T. Melnick, United States: When Is a Whistleblower Not a Whistleblower?, MONDAQ, istleblower+not+a+whistleblower (last updated Nov. 1, 2013) (asserting that under Section 78u-6(h)(1)(A)(iii), an individual can report a securities violation to anyone ).

12 1540 HOUSTON LAW REVIEW [52:5 The SEC and several federal district courts view the third prong of Section 78u-6(h)(1)(A) as an exception to the Whistleblower Definition. 66 Others, including the Fifth Circuit, adhere to the strict view that an individual may only receive retaliation relief if the individual meets the Whistleblower Definition. 67 Despite these divergent views, Section 78u-6 embodies a material inconsistency that muddles the issue of who qualifies for whistleblower retaliation protection. 68 Although a glaring inconsistency exists between the Anti-Retaliation Provision and the Whistleblower Definition, the legislative history, while not entirely illuminative, 69 may shed some light on who should be entitled to whistleblower retaliation protections. 70 For example, the House conference report explains that the subtitle containing the Anti- Retaliation Provision and the Whistleblower Definition was designed to offer incentives and protections for whistleblowers providing information leading to successful SEC enforcement actions. 71 Furthermore, the Senate also weighed in on Section 922 of the Dodd-Frank Act by stating that the whistleblower incentives and protections serve to motivate individuals to report securities law violations See 17 C.F.R F-2(b)(1) (2013) (containing no requirement that a whistleblower must report to the SEC to receive protection against retaliation); Egan v. TradingScreen, Inc., No. 10 Civ. 8202(LBS), 2011 WL , at *5 (S.D.N.Y. May 4, 2011) ( The contradictory provisions of the Dodd-Frank Act are best harmonized by reading 15 U.S.C. 78u-6(h)(1)(A)(iii)[]... as a narrow exception to 15 U.S.C. 78u-6(a)(6) s definition of a whistleblower as one who reports to the SEC. ); discussion infra Part IV (analyzing the debate among federal courts on who is entitled to whistleblower retaliation relief). 67. Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620, 630 (5th Cir. 2013); Verfuerth v. Orion Energy Sys., Inc., No. 14-C-352, 2014 WL , at *2 4 (E.D. Wis. Nov. 4, 2014); see Corporate Law Securities Regulation Congress Expands Incentives for Whistleblowers to Report Suspected Violations to the SEC, 124 HARV. L. REV. 1829, 1832 (2011) ( [The whistleblower] definition unambiguously indicates that a person who reports only internally cannot qualify as a whistleblower under [Section 78u-6] and is therefore not protected by its antiretaliation provisions. ). 68. Compare 15 U.S.C. 78u-6(a)(6) (containing an express requirement that an individual report violations to the SEC), with 15 U.S.C. 78u-6(h)(1)(A)(iii) (lacking any requirement that an individual report to the SEC). 69. See Egan, 2011 WL , at *4 ( The legislative history of the Act provides little evidence of Congress s purpose. ). 70. See generally H.R. REP. NO , at 870 (2010) (Conf. Rep.) (Joint Explanatory Statement of the Committee of Conference) (providing some background on the House s purpose behind whistleblower protection in Section 922 of the Dodd-Frank Act); S. REP. NO , at 38, , (2010) (Conf. Rep.) (explaining the Senate s intent behind whistleblower protection in Section 922 of the Dodd-Frank Act). 71. H.R. REP. NO , at S. REP. NO , at (lacking any mention of a requirement that individuals must report to the SEC when discussing the Anti-Retaliation Provision).

13 2015] SHELTER FROM THE RETALIATION STORM 1541 Therefore, based on the intentions from both chambers of Congress, 73 the whistleblower protections under the Anti-Retaliation Provision are arguably designed to expand relief to individuals with inside information rather than restrict relief. In addition to the inconsistencies of Section 78u-6, there are other contradictions in the Dodd-Frank Act Tension Across the Dodd-Frank Act. Another section of the Dodd-Frank Act that grants whistleblower retaliation relief is found in Title 7, Section 26 of the United States Code, which amended the Commodity Exchange Act. 75 Section 26 provides whistleblower incentives and protections that bear a strong resemblance to those of Section 78u For example, Section 26 provides an almost identical definition of whistleblower : The term whistleblower means any individual... who provides information relating to a violation of this chapter to the Commission, in a manner established by rule or regulation by the Commission. 77 Like the Whistleblower Definition in Section 78u-6, which qualifies a whistleblower as someone who reports to the Commission, 78 Section 26 requires the same for whistleblower qualification. 79 Although the whistleblower definitions of Title 15, Section 78u-6 and Title 7, Section 26 may be similar, their anti-retaliation provisions are not. 80 As discussed above, 81 Section 78u-6(h)(1)(A) contains a third prong that does not expressly require an individual to blow the 73. See generally H.R. REP. NO , at 870 (House s view of Section 922 of the Dodd-Frank Act); S. REP. NO , at (Senate s view of Section 922 of the Dodd-Frank Act). 74. See discussion infra Part III.B (explaining the differences between the provisions in issue, Section 78u-6(a)(6) and (h)(1)(a)(iii), and the differences between Sections 922 and 748 of the Dodd-Frank Act). 75. Dodd-Frank Act, Pub. L. No , tit. VII, 748, 124 Stat. 1376, 1739 (2010) (codified as amended at 7 U.S.C. 26 (2012)); Shimabukuro, Whitaker & Roberts, supra note 44, at Compare 7 U.S.C. 26(a)(7), (h)(1)(a) (the whistleblower definition and anti-retaliation provisions codified in the Commodity Exchange Act), with 15 U.S.C. 78u-6(a)(6), (h)(1)(a) (the Whistleblower Definition and Anti-Retaliation Provision codified in the Securities Exchange Act) U.S.C. 26(a)(7) U.S.C. 78u-6(a)(6) U.S.C. 26(a)(7). 80. Compare 15 U.S.C. 78u-6(h)(1)(A) (containing a third prong that arguably could allow an individual to receive retaliation relief without reporting to the SEC), with 7 U.S.C. 26(h)(1)(A) (lacking a third prong that could potentially permit an individual to be entitled to anti-retaliation relief without reporting to the Commission ). 81. See supra note 65 and accompanying text (pointing out that the statutory language of the Anti-Retaliation Provision suggests that individuals may report securities violations to their employer).

14 1542 HOUSTON LAW REVIEW [52:5 whistle by reporting to the SEC. 82 Section 26, on the other hand, lacks such a prong. 83 The legislative history of each section s anti-retaliation provision does not clarify this difference. 84 However, a strong argument could be made that the third prong of Section 78u-6(h)(1)(A) is an intentional exception to the Whistleblower Definition. 85 Perhaps Congress intended the third prong of Title 15, Section 78u-6(h)(1)(A) to broaden the anti-retaliation protections, but decided it was not necessary for Title 7, Section Whether this noted difference was intentional or a drafter s error, the difference suggests that Section 78u-6(h)(1)(A)(iii) allows individuals to receive retaliation protection whether they qualify as a statutory whistleblower or not. 87 C. SEC Regulations In addition to the statutory language and legislative history of Section 78u-6, the SEC has also given its interpretation through promulgated regulations. 88 On June 13, 2011, the SEC adopted its final rule on securities whistleblower incentives and protections, including the definition of whistleblower. 89 Section F-2 of the Federal Code of Regulations contains two whistleblower definitions: a general definition and a specific anti-retaliation definition. Section F-2(a) defines whistleblower generally as an individual who alone or jointly with others,... provide[s] the Commission with information. 90 However, when determining 82. See discussion supra Part III.B.1 (explaining the facets of the Anti-Retaliation Provision in Section 78u-6(h)(1)(A)). 83. See 7 U.S.C. 26(h)(1)(A) (including only two prongs in its anti-retaliation provision, neither of which are similar to the third prong in 15 U.S.C. 78u-6(h)(1)(A)). 84. See generally H.R. REP. NO , at (2010) (Conf. Rep.) (discussing legislative history of Title VII and Title IX of the Dodd-Frank Act, which contain Section 748 (i.e., 7 U.S.C. 26) and Section 922 (i.e., 15 U.S.C. 78u-6), respectively). 85. See, e.g., Barry Scholl & Kevin Timken, Blow the Whistle: The Dodd-Frank Act Creates New Incentives for Whistleblowers and Compliance Issues for Utah Businesses, UTAH B.J., Mar. Apr. 2012, at 36, 39 ( The anti-retaliation provisions [of Section 78u-6(h)(1)(A)] are not entirely new; they merely expand the anti-retaliation provisions adopted as part of the Sarbanes-Oxley Act of 2002 to match the scope of the new whistleblower provisions. ), available at /2013/02/2012_edition_02_mar_apr.pdf. 86. See, e.g., id. 87. See Egan v. TradingScreen, Inc., No. 10 Civ. 8202(LBS), 2011 WL , at *5 (S.D.N.Y. May 4, 2011) (interpreting Section 78u-6(h)(1)(A) to contain an exception). 88. Securities Whistleblower Incentives and Protections, 17 C.F.R F (2013). 89. Id F-2(b)(1); Securities Whistleblower Incentives and Protections, 76 Fed. Reg. 34,300, 34,304 (June 13, 2011) (codified at 17 C.F.R F) C.F.R F-2(a).

15 2015] SHELTER FROM THE RETALIATION STORM 1543 whistleblower status in the context of anti-retaliation actions, the SEC chose to create a specific definition. 91 Section F-2(b)(1) states: For purposes of the anti-retaliation protections afforded by Section 21F(h)(1) of the Exchange Act (15 U.S.C. 78u-6(h)(1)), you are a whistleblower if: (i) [y]ou possess a reasonable belief that the information you are providing relates to a possible securities law violation... and; (ii) [y]ou provide that information in a manner described in Section 21F(h)(1)(A) of the Exchange Act (15 U.S.C. 78u-6(h)(1)(A)). 92 Under the SEC s interpretation of who qualifies as a whistleblower under the Anti-Retaliation Provision of Section 78u-6(h)(1)(A), an individual has the option of reporting securities law violations externally or internally. 93 The SEC s construal of whistleblower status could arguably be consistent or inconsistent with Section 78u-6. If the Anti-Retaliation Provision is interpreted as incorporating an exception to the Whistleblower Definition, as some federal district courts have done, then the SEC interpretation is aligned with the statute. 94 If a literal reading of the Whistleblower Definition is applied evenly in all circumstances, and an individual must always report to the SEC, then the SEC regulations are inconsistent with Section 78u It remains unclear as to whether the SEC s promulgated rules are consistent with the statutory language of Section 78u However, the SEC s official interpretation of 91. Id F-2(b)(1); see Securities Whistleblower Incentives and Protections, 76 Fed. Reg. at 34,304 (commenting that some types of whistleblowers can report to persons or governmental authorities other than the Commission ) C.F.R F-2(b)(1). 93. Id.; see Securities Whistleblower Incentives and Protections, 76 Fed. Reg. at 34,304 (stating that although some classes of whistleblowers may report internally and still receive anti-retaliation protection, this protection is limited to employees of public companies); Stephen M. Flanagan, Whistleblower Does Not Qualify Even If SEC Says He Is One, FLETCHER CORP. L. ADVISER, Sept. 2013, at 1, 2 (noting that the SEC took an expansive approach in defining whistleblower for retaliation purposes by reading Section 78u-6(h)(1)(A)(iii) to lack any requirement that an employee report to the SEC). 94. Murray v. UBS Sec., LLC, No. 12 Civ. 5914(JMF), 2013 WL , at *7 (S.D.N.Y. May 21, 2013); Nollner v. S. Baptist Convention, Inc., 852 F. Supp. 2d 986, (M.D. Tenn. 2012); Egan v. TradingScreen, Inc., No. 10 Civ. 8202(LBS), 2011 WL , at *5 (S.D.N.Y. May 4, 2011). 95. Dodd-Frank Act, 15 U.S.C. 78u-6(a)(6) (2012); see Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620, 630 (5th Cir. 2013) (finding that the definition of whistleblower is unambiguous and that it was unnecessary to go beyond the plain language of the statute). 96. Compare Egan, 2011 WL , at *5 (construing the Anti-Retaliation Provision as an exception to the Whistleblower Definition), with Asadi, 720 F.3d at 630

16 1544 HOUSTON LAW REVIEW [52:5 the statute remains clear: 97 the Anti-Retaliation Provision permits an individual to receive whistleblower protection for reporting a violation to the employer and not the SEC. 98 IV. THE EMERGING DIVIDE A. Asadi v. G.E. Energy (USA), L.L.C. 99 Since the Dodd-Frank Act was passed in 2010, few federal courts have addressed the issue of reporting securities violations to the SEC in order to claim protection under the Anti-Retaliation Provision of Section 78u As of now, the Fifth Circuit is the only federal court of appeals to review this issue. 101 In Asadi, the Fifth Circuit held that an employee must report to the SEC to qualify as a whistleblower for anti-retaliation purposes. 102 Khaled Asadi, an employee of G.E. Energy, had a suspicion that some of the business activities of G.E. Energy were in violation of the Foreign Corrupt Practices Act. 103 Asadi reported his suspicions to G.E. Energy; shortly thereafter, he was fired. 104 Asadi sued G.E. Energy under Section 78u-6(h)(1)(A)(iii) of the Dodd-Frank Act, claiming (finding that an individual must always report securities violations to the SEC to qualify as a whistleblower). 97. See Securities Whistleblower Incentives and Protections, 76 Fed. Reg. at 34,304 ( [T]he statutory anti-retaliation protections apply to three different categories of whistleblowers, and the third category includes individuals who report to persons or governmental authorities other than the Commission. ) C.F.R F-2(b)(1) (2013). 99. Asadi, 720 F.3d Fired GE Energy Executive Not Dodd-Frank Whistleblower, Fed. Sec. L. Rep. (CCH) No. 2589, at 3 (Aug. 1, 2013), available at 2013 WL ; see Banko v. Apple Inc., 20 F. Supp. 3d 749, 755 (N.D. Cal. 2013) (pointing out that the four district courts who had addressed this issue had found Section 78u-6 ambiguous) Banko, 20 F. Supp. 3d at 756 (observing that Asadi is the only appellate decision to address [the] issue ); see Asadi, 720 F.3d 620 (first court of appeals case to address the issue). Two cases addressing this same issue were recently on appeal to the Tenth Circuit, but the court decided both cases without reaching the interpretation of the Whistleblower Definition and Anti-Retaliation Provision. Wagner v. Bank of Am. Corp., No. 12-cv RBJ, 2013 WL (D. Colo. July 19, 2013), aff d on other grounds, 571 F. App x 698 (10th Cir. 2014); Genberg v. Porter, 935 F. Supp. 2d 1094 (D. Colo. 2013), aff d in part, dismissed in part, 566 F. App x 719 (10th Cir. 2014); Keating & Melnick, supra note 65 (stating that the Colorado federal district courts in Genberg and Wagner came to clashing conclusions on the issue) Asadi, 720 F.3d at Id. at Id.

17 2015] SHELTER FROM THE RETALIATION STORM 1545 employer retaliation for reporting his suspicions. 105 Specifically, Asadi grounded his claim in the tension between the Anti-Retaliation Provision and the Whistleblower Definition. 106 Although the Fifth Circuit conceded that Asadi had the SEC s interpretation and federal district court case law in his corner, the Fifth Circuit nonetheless diverged from those positions. 107 Rejecting the SEC s interpretation, 108 the Fifth Circuit reasoned that [u]nder Dodd-Frank s plain language and structure, there is only one category of whistleblowers: individuals who provide information relating to a securities law violation to the SEC. 109 The effect of the Asadi holding, at least in jurisdictions in the Fifth Circuit, is that employees must report securities law violations to the SEC rather than the employer to preserve the right to an anti-retaliation action. 110 The Fifth Circuit s narrow interpretation of the Whistleblower Definition not only contradicts SEC regulations and several federal district court rulings but has also created a wave of controversy. 111 B. Pre-Asadi Case Law Before the Fifth Circuit reviewed this statutory issue, several federal district courts addressed the clashing Anti-Retaliation Provision and Whistleblower Definition. 112 The 105. Id. at 621, Id. at 624 ( [Asadi] bases this construction of the statute on a perceived conflict between the statutory definition of whistleblower... and the third category of protected activity, which does not necessarily require disclosure of information to the SEC. ) See id. at (addressing Asadi s chief argument of entitlement to retaliation relief under Section 78u-6(h)(1)(A)(iii)); Wagner v. Bank of Am. Corp., No. 12-cw RBJ, 2013 WL , at *6 (D. Colo. 2013) (acknowledging that the district court holding, which follows the Asadi holding, is a minority view at this point ), aff d on other grounds, 571 F. App x 698 (10th Cir. 2014) Asadi, 720 F.3d at 630. See generally 17 C.F.R F-2(b)(1) (2013) (providing the SEC s definition of whistleblower in the context of the retaliation provision) Asadi, 720 F.3d at The Fifth Circuit provided another reason for its holding: the third prong of Section 78u-6(h)(1)(A) is not superfluous because it protects whistleblowers who make other [possible] required or protected disclosures. See id. at (giving a hypothetical where an employee reports to the SEC and his employer) See id. at 625 (finding that Congress left zero doubt as to who qualified for whistleblower protections); DANA SHILLING, THE COMPLETE GUIDE TO HUMAN RESOURCES AND THE LAW 45 (2014) ( [R]etaliation based on an internal complaint is not covered by the Dodd-Frank Act. ) See Keating & Melnick, supra note 65 (positing that this issue of statutory interpretation has only become more clouded since Asadi) See supra note 100 and accompanying text.

18 1546 HOUSTON LAW REVIEW [52:5 first district court case to decide this matter, even before the SEC promulgated its final rule, 113 was Egan v. TradingScreen, Inc. 114 In Egan, the district court determined that the third prong of the Anti-Retaliation Provision, Section 78u-6(h)(1)(A)(iii), is best read as a narrow exception to the Whistleblower Definition. 115 The district court reasoned that Section 78u-6(h)(1)(A)(iii) did not require the employee to report to the SEC 116 and that a literal reading of the definition of the term whistleblower... would effectively invalidate 78u-6(h)(1)(A)(iii) The Egan holding resulted in a broad interpretation of whistleblower for retaliation actions 118 and was contradicted by the Fifth Circuit s holding over two years later. 119 Prior to the Asadi ruling, four federal district court cases followed Egan s lead by interpreting the third category of the Anti-Retaliation Provision as an exception to the Whistleblower Definition. 120 All four of these cases were decided after the SEC issued its final rule, Section F-2, on who can qualify as a whistleblower in employer retaliation suits. 121 Three of the district courts expressly agreed with the SEC regulation. 122 In Murray, the district court reasoned that because the SEC s rule clarifies an ambiguous statutory scheme the SEC was charged 113. Securities Whistleblower Incentives and Protections, 76 Fed. Reg. 34,300 (June 13, 2011) (codified at 17 C.F.R F); 17 C.F.R F-2(b)(1) (2013) Nate Raymond, Judge Dismisses Suit in the First Test of Dodd-Frank Retaliation Provisions, 246 N.Y. L.J. 6 (2011) Egan v. TradingScreen, Inc., No. 10 Civ. 8202(LBS), 2011 WL , at *5 (S.D.N.Y. May 4, 2011) See Dodd-Frank Act, 15 U.S.C. 78u-6(h)(1)(A)(iii) (2012) (prohibiting employers from retaliating against employees who make disclosures that are required or protected under the Sarbanes-Oxley Act... this chapter... section 1513(e) of title 18, and any other law, rule, or regulation subject to the jurisdiction of the [SEC] ) Egan, 2011 WL , at * See Haaf & Platt, supra note 37, at 2 (discussing the exceptions the court found in Egan to the Whistleblower Definition) Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620, 620, (5th Cir. 2013) (decided on July 17, 2013) Murray v. UBS Sec., LLC, No. 12 Civ. 5914(JMF), 2013 WL , at *7 (S.D.N.Y. May 21, 2013); Genberg v. Porter, 935 F. Supp. 2d 1094, 1106 (D. Colo. 2013), aff d in part, dismissed in part, 566 F. App x 719 (10th Cir. 2014); Kramer v. Trans-Lux Corp., No. 3:11cv1424(SRU), 2012 WL , at *4 5 (D. Conn. Sept. 25, 2012); Nollner v. S. Baptist Convention, Inc., 852 F. Supp. 2d 986, 993 (M.D. Tenn. 2012) Securities Whistleblower Incentives and Protections, 76 Fed. Reg. 34,300, 34,304 (June 13, 2011) (codified at 17 C.F.R F) See Murray, 2013 WL , at *6 7 (elaborating on the differences between proposed rule and final rule); Kramer, 2012 WL , at *4 5 (recognizing the SEC s attempt[] to clarify the interplay between the two provisions at issue); Nollner, 852 F. Supp. 2d at (citing to SEC s comments on the final rule).

19 2015] SHELTER FROM THE RETALIATION STORM 1547 with enforcing and reflects the considerable experience and expertise that the agency has acquired over time with respect to interpretation and enforcement of the securities laws, this Court defers to the SEC s interpretation. 123 Therefore, in the case law that preceded Asadi, the courts recognized the ambiguity and inconsistency between the Whistleblower Definition and the Anti-Retaliation Provision. 124 Further, some courts even chose to allow internal reporting of securities law violations in certain circumstances. 125 Despite the Fifth Circuit s recent holding, some federal district courts continue to follow the path set forth by Egan. C. Post-Asadi Case Law The uncertainty of whistleblower retaliation protection under the Dodd-Frank Act continues to linger. 126 Since Asadi, federal district courts are growing divided on the issue; 127 some have sided with the Fifth Circuit, and others have sided with the SEC. The courts in Verfuerth v. Orion Energy Systems, Inc., Wagner v. Bank of America Corp., and Banko v. Apple, Inc. adopted Asadi and ruled that the Whistleblower Definition is unambiguous. 128 Following a literal approach, all three courts ruled that an employee must report the alleged violation to the SEC to be protected under the Anti-Retaliation Provision. 129 In 123. Murray, 2013 WL , at * Id.; Genberg, 935 F. Supp. 2d at 1106; Kramer, 2012 WL , at *4 5; Nollner, 852 F. Supp. 2d at See Keating & Melnick, supra note 65 (noting the growing list of federal district courts that are endorsing the SEC s final rule) Id.; Jason M. Knott, Financial Planner Dodges Dodd-Frank Whistleblower Dismissal, LEXOLOGY (Dec. 17, 2013), Compare Verfuerth v. Orion Energy Sys., Inc., No. 14-C-352, 2014 WL , at *2 4 (E.D. Wis. Nov. 4, 2014) (following the Asadi holding), and Banko v. Apple Inc., 20 F. Supp. 3d 749, 757 (N.D. Cal. 2013) (following the Asadi holding), and Wagner v. Bank of Am. Corp., No. 12-cv RBJ, 2013 WL , at *6 (D. Colo. July 19, 2013) (following the Asadi holding), aff d on other grounds, 571 F. App x 698 (10th Cir. 2014), with Connolly v. Remkes, No. 5:14-CV LHK, 2014 WL , at *4 6 (N.D. Cal. Oct. 28, 2014) (adopting the SEC s interpretation), and Khazin v. TD Ameritrade Holding Corp., No (SDW), 2014 WL , at *6 (D.N.J. Mar. 11) (adopting the SEC s interpretation), aff d on other grounds, 777 F.3d 488 (3d Cir. 2014), and Rosenblum v. Thomson Reuters (Mkts.) LLC, 984 F. Supp. 2d 141, 148 (S.D.N.Y. 2013) (adopting the SEC s interpretation), and Ellington v. Giacoumakis, 977 F. Supp. 2d 42, 45 (D. Mass. 2013) (adopting the SEC s interpretation) Verfuerth, 2014 WL , at *2 4; Banko, 20 F. Supp. 3d at 756; Wagner 2013 WL , at *5 6; District Court Adopts Fifth Circuit s Minority Whistleblower View, Fed. Sec. L. Rep. (CCH), Aug. 1, 2013, at 7 8, available at 2013 WL Verfuerth 2014 WL , at *3; Banko, 20 F. Supp. 3d at 756; Wagner, 2013 WL , at *5 6.

20 1548 HOUSTON LAW REVIEW [52:5 Colorado, the Colorado District Court has oddly reached conflicting results in reconciling the Anti-Retaliation Provision and Whistleblower Definition in the Wagner and Genberg cases. 130 Both cases were appealed, and although the Tenth Circuit had an opportunity to address the inter-district split, the court did not reach the interpretation issue in either case. 131 Even though a few district courts have followed the Fifth Circuit s lead, 132 the Asadi interpretation remains in the minority. 133 The remaining post-asadi district court cases have aligned with the SEC. 134 For example, in Rosenblum v. Thomson Reuters LLC, the district court recognized the conflict between the Whistleblower Definition and the Anti-Retaliation Provision. 135 Furthermore, Rosenblum emphasized that Congress gave the SEC authority to enforce the Dodd-Frank Act. 136 Therefore, the SEC s promulgated regulations should be given deference. 137 Despite the Fifth Circuit s recent interpretation of the Anti-Retaliation Provision and Whistleblower Definition, district courts continue to find merit in the SEC interpretation. 138 D. Where the SEC and the Courts Stand In one corner stands the championing SEC interpretation of the two Dodd-Frank Act provisions; in the other corner stands 130. Compare Wagner, 2013 WL , at *5 6 (adopting the minority view set forth by the Fifth Circuit), with Genberg v. Porter, 935 F. Supp. 2d 1094, 1106 (D. Colo. 2013) (adopting the view that Section 78u-6(h)(1)(A)(iii) is a narrow exception to the Whistleblower Definition), aff d in part, dismissed in part, 566 F. App x 719 (10th Cir. 2014) Wagner v. Bank of Am. Corp., 571 F. App x 698, 700 (10th Cir. 2014); Genberg v. Porter, 566 F. App x 719, (10th Cir. 2014); Keating & Melnick, supra note See Banko, 20 F. Supp. 3d at 755 ( This is a matter of first impression in the Ninth Circuit. ); Wagner, 2013 WL , at *4 6 (stopping its analysis at the plain language of the statute) See District Court Adopts Fifth Circuit s Minority Whistleblower View, supra note 128, at 7 8, (citing the plain text reading of Section 78u-6 as a minority view) Connolly v. Remkes, No. 5:14-CV LHK, 2014 WL , at *4 6 (N.D. Cal. Oct. 28, 2014); Khazin v. TD Ameritrade Holding Corp., No (SDW), 2014 WL , at *6 (D.N.J. Mar. 11), aff d on other grounds, 777 F.3d 488 (3d Cir. 2014); Rosenblum v. Thomson Reuters (Mkts.) LLC, 984 F. Supp. 2d 141, (S.D.N.Y. 2013); Ellington v. Giacoumakis, 977 F. Supp. 2d 42, 45 (D. Mass 2013) Rosenblum, 984 F. Supp. 2d at 147. The Rosenblum court, which is in the Southern District of New York, followed the Egan court, another court in the Southern District of New York. See Egan v. TradingScreen, Inc., No. 10 Civ. 8202(LBS), 2011 WL , at *3 n.1 (S.D.N.Y. May 4, 2011) (noting that this was the first federal court to hear this particular issue) Rosenblum, 984 F. Supp. 2d at Id Id.; Ellington, 977 F. Supp. 2d at 45.

21 2015] SHELTER FROM THE RETALIATION STORM 1549 the underdog Fifth Circuit interpretation. 139 The SEC, as well as a growing number of district courts, takes a more purpose-driven and expansive approach by providing more protection for employees who have been terminated for reporting internally. 140 The Fifth Circuit, on the other hand, denies relief for an employee who seeks shelter from the retaliation storm on the basis that the employee took the misstep of failing to inform the SEC of the violation. 141 The developing rift between federal courts has become a pressing issue and is gathering contentious momentum one case at a time. 142 Until the whistleblower retaliation protection issue is resolved, it will continue to impact not only employees but other groups as well. 143 It remains undecided as to which standpoint will carry the day. 144 The current divide makes for a well-suited question only the Supreme Court or Congress can answer. 145 V. THE IMPLICATIONS OF ASADI AND PROPOSED SOLUTIONS A. The Implications The debate over who qualifies for whistleblower retaliation protection has only just begun. 146 One outcome that does appear 139. Knott, supra note See Securities Whistleblower Incentives and Protections, 76 Fed. Reg. 34,300, 34,304 (June 13, 2011) (codified at 17 C.F.R F) (interpreting the third prong of Section 78u-6(h)(1)(A) as giving the option to report internally or externally); supra note 120 and accompanying text (mentioning the federal district courts that followed the SEC approach) See Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620, 623 (5th Cir. 2013) (ignoring the purpose and legislative history behind the Dodd-Frank Act) See U.S. SEC. & EXCH. COMM N, 2013 ANNUAL REPORT TO CONGRESS ON THE DODD-FRANK WHISTLEBLOWER PROGRAM 6 n.7 (2013), available at /about/offices/owb/annual-report-2013.pdf (acknowledging the Asadi holding and noting that it may contradict a Commission regulation ); Christian Bartholomew & Brianna Benfield Ripa, SEC s Second Annual Report Summarizing Whistleblower Program Shows Little Change, METROPOLITAN CORP. COUNS., Jan. 2014, at 5, 5, available at (asserting that the issue surrounding whistleblower retaliation protections is clearly a sign of [] importance ) Knott, supra note Keating & Melnick, supra note See Paula Burkes, Q&A with Joe E. Edwards: Dodd-Frank Whistle-Blower Ruling May Benefit Employers, OKLAHOMAN (Sept. 18, 2013), (modified Sept. 19, 2013, 11:00 PM) (positing that if enough federal courts of appeal split on this issue, the Supreme Court may review the issue) See Asadi, 720 F.3d at 630 (becoming the first federal court of appeals to rule on this issue); supra note 100 and accompanying text (discussing the short case law history of the whistleblower retaliation provisions).

22 1550 HOUSTON LAW REVIEW [52:5 to be clear is how the two vying views may impact employees, employers, the SEC, and the federal courts Employees. Before determining how the developing divide will impact employees, a more basic question should be asked: Why did Congress create the whistleblower system? At a concrete level, the answer is simple. Congress created the whistleblower system to discover fraud and prevent corporate misconduct. 148 However, a righteous-driven system may lead to career-ending consequences for the employee who reports employer or corporate misconduct. Whistleblowers encounter significant retaliation [in the form of] isolation at work, [] discharge, [] physical violence, 149 and the risk of being blackballed by an entire industry. 150 To prevent such repercussions, anti-retaliation protections are implemented and enforced. 151 The repercussions of whistleblowing exhibit why employees need anti-retaliation provisions. Without anti-retaliation provisions, employees could lose their careers and reputability. 152 Most importantly, whistleblowing repercussions are why the interpretation in Asadi holds much importance. The narrow Asadi interpretation could limit an employee s relief options, relationships, and incentives. 153 This Comment will address each individually See John J. Carney, Francesca M. Harker & Samuel Light, A Shift in Whistleblower Protections: New Incentives for Employees to Report to the SEC Directly, MONDAQ (Aug. 2, 2013), Shift+In+Whistleblower+Protections+New+Incentives+For+Employees+To+Report+To+T he+sec+directly (discussing how the incentives to report internally have changed since Asadi); Burkes, supra note 145, at 4C (describing the effects of the Asadi ruling) See Hesch, supra note 9, at 223 (explaining that Congress set up whistleblower protections to entice watchmen ); Richard Moberly, Protecting Whistleblowers by Contract, 79 U. COLO. L. REV. 975, 980 (2008) (asserting that [e]ncouraging employees to disclose their inside knowledge of wrongdoing is a critical step in order to unearth fraud or illegal activities of companies) Moberly, supra note 148, at Kathleen F. Brickey, From Enron to WorldCom and Beyond: Life and Crime After Sarbanes-Oxley, 81 WASH. U. L. Q. 357, 365 (2003) (citing [a] random review of 200 whistleblower complaints filed with the National Whistleblower Center in 2002 reporting various forms of employer retaliation); see AUGUST B. MUNDEL, ETHICS IN QUALITY 132 (1991) ( Many [whistleblowers] find it extremely difficult to find new positions at equivalent levels giving rise to the view that influential people... have acted to blackball the individuals and to give them very unsatisfactory references. ) Moberly, supra note 148, at 981 ( In addition to encouraging employees to come forward, anti-retaliation protections can remedy any retaliation that occurs and deter employers from retaliating in the first place. ) See Brickey, supra note 150, at 365 (discussing the downsides to whistleblowing) See Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620, 630 (5th Cir. 2013) (declaring that if an employee fails to report to the SEC, then the employee is not a whistleblower and will not receive retaliation protections).

23 2015] SHELTER FROM THE RETALIATION STORM 1551 i. Relief Options. For employees who have either reported violations or are considering reporting violations, the procedural path taken could determine the employee s retaliation recourse. 154 Three scenarios of retaliation recourse could result depending on the jurisdiction in which the suit is brought. In the first scenario, an employee brings a retaliation suit in a district that adheres to the SEC interpretation of Section 78u-6. The employee will have a larger breadth of retaliation protection in reporting securities law violations. 155 For example, the employee can report directly to the SEC or within the employer hierarchy. 156 In the second scenario, an employee brings an action in the Fifth Circuit 157 or in one of the few district courts that have adopted the Fifth Circuit s treatment of whistleblowers. 158 The employee will have no recourse under the Anti-Retaliation Provision unless the employee reports to the SEC. 159 Thus, employees have limited relief options under this scenario. 160 Finally, in the third scenario, an employee sues the employer in a jurisdiction that has not sided with either the SEC or the Fifth Circuit. The employee should report either to the SEC or to both the SEC and the employer. 161 Reporting to both entities preserves antiretaliation protections even if the district court follows the Fifth Circuit See id. (finding that Asadi, the employee, had no recourse because he reported internally); Craig A. Foster, Fifth Circuit Restricts Dodd-Frank Retaliation Protections for Whistleblowers, LEXOLOGY (Dec. 9, 2013), (illustrating a scenario of how an employee could forfeit retaliation protections) See Keating & Melnick, supra note 65 (comparing the broader SEC interpretation to the narrower Fifth Circuit interpretation) See Securities Whistleblower Incentives and Protections, 76 Fed. Reg. 34,300, 34,304 (June 13, 2011) (codified at 17 C.F.R F) (permitting internal disclosure as long as it falls within third prong of Section 78u-6(h)(1)(A)) See Carney, Harker & Light, supra note 147 (stating that the Fifth Circuit encompasses three states Texas, Louisiana, and Mississippi) Banko v. Apple Inc., 20 F. Supp. 3d 749, (N.D. Cal 2013); Wagner v. Bank of Am. Corp., No. 12-cv RBJ, 2013 WL , at *6 (D. Colo. July 19, 2013), aff d on other grounds, 571 F. App x 698 (10th Cir. 2014) See Asadi, 720 F.3d at 630 (reading the statute as requiring whistleblowers, under any circumstance, to report to the SEC) See id. (turning away an employee who reported a potential violation within the walls of G.E. Energy) See Renee Phillips & Mike Delikat, Dodd-Frank Retaliation Cases Continue to Be a Mixed Bag for Companies, ORRICK: EMP. L. & LITIG. BLOG (Oct. 23, 2013), (asserting that the Ellington case show[s] that courts continue to reach widely divergent results in their interpretations ) See Knott, supra note 126 (providing recommendations for employees in light of the Asadi holding).

24 1552 HOUSTON LAW REVIEW [52:5 All three scenarios illustrate that Asadi has caused the availability of whistleblower retaliation protections to turn on a procedural reporting technicality. 163 Therefore, despite an employee s willingness to report employer misconduct, the Dodd-Frank Act could restrict employees anti-retaliation options. 164 ii. Relationships. The second way the growing divide impacts employees is the employee-employer relationship. 165 One critic of the literalist approach predicted the following: [I]n the long term [such an approach] will only lead to less trust between employees and management in the financial sector. 166 The prediction seems reasonable. If employees begin to bypass internal reporting programs in order to preserve anti-retaliation protections, employers may become distrustful. 167 iii. Incentives. The third potential ramification of the split relates to employee incentive. 168 As a result of Asadi, employees may find it more beneficial to report directly to the SEC and avoid the employer s internal reporting programs. 169 However, employees may already fear reporting employer misconduct and may feel uncomfortable making such a drastic leap by going to the SEC first. 170 Therefore, employees will be unpredictable in reacting to the uncertainty shrouding the Anti-Retaliation Provision and Whistleblower Definition. 171 As the statutory issue continues to divide courts, the overarching 163. See Asadi, 720 F.3d at 630 (denying anti-retaliation protection for reporting internally) See supra note 154 and accompanying text (discussing how the path the employee chooses to report violations will dictate the available anti-retaliation remedies) See Marlowe Doman, Why Risk It? The Motivations of the Whistleblower, COMPLIANCE & ETHICS PROF., Jan. Feb. 2012, at 20, 23, available at group.com/downloads/cep%20redesign%20for%20scce.pdf Id See id. (noting that without retaliation relief for reporting to the employer, employees will have a strong incentive to immediately go to the [SEC] ) Corporate Law Securities Regulation Congress Expands Incentives for Whistleblowers to Report Suspected Violations to the SEC, supra note 67, at Gregory A. Brower & Brett W. Johnson, When Enough Is Not Enough: Two Court Rulings Complicate Corporate Compliance Efforts, WESTLAW J. WHITE-COLLAR CRIME, Nov. 21, 2013, at 1, See Aaron S. Kesselheim, David M. Studdert & Michelle M. Mello, Whistle-Blowers Experiences in Fraud Litigation Against Pharmaceutical Companies, 362:19 NEW ENG. J. MED. 1832, 1837 (2010) ( Generally, whistleblowers first move [is] to try to address problems internally.... ) See supra notes and accompanying text (explaining how Congress set up whistleblower programs to detect corporate misconduct, and observing the resulting consequences of employer retaliation).

25 2015] SHELTER FROM THE RETALIATION STORM 1553 goals and consequences of whistleblowing should be kept in mind Employers. Is the Asadi interpretation of the Dodd-Frank Act employer-friendly? Not necessarily. 173 Employers in jurisdictions that follow the Fifth Circuit s rule may see a decline in the number of anti-retaliation actions brought against them. 174 Although employers may celebrate this advantage of the Asadi holding, they may want to reevaluate its effects. For employers, the downsides of Asadi could outweigh the upside of having fewer employee anti-retaliation suits. 175 First, employers may miss the opportunity to uncover and fix an alleged securities law violation if employees are required to report to the SEC. 176 This missed opportunity is a major disadvantage because it could leave the employer unaware of a securities law violation until the SEC begins an investigation. 177 Second, now that the Fifth Circuit has ruled on the issue, employees may shift to reporting to the SEC whether they are in an Asadi-following jurisdiction or not. 178 Bypassing an employer s internal reporting system could create distrust and further retaliation in the work environment. 179 Third, as one commentator has pointed out, the Asadi approach will undermine a key role of chief compliance officers, who [are] tasked with investigating and responding to instances of 172. See supra notes and accompanying text See Foster, supra note 154 (stating some of the advantages and disadvantages of the Asadi holding for employers). However, some have speculated that the district court holdings, which have adopted the SEC interpretation, could lead to a steep increase in anti-retaliation actions. Barbara Hoey & Jeanne Barber, Keeping Current: Two Federal Courts Issue Expansive Interpretations of the Dodd-Frank Act s Whistleblower Definition, A.B.A.: BUS. L. TODAY (Oct. 2012), /keeping_current_hoey.html Burkes, supra note 145, at 4C See Knott, supra note 126 (addressing steps employers should take to protect themselves in light of the developing debate) See Brower & Johnson, supra note 169, at 4 ( [I]t is always in a company s best interests to discover wrongdoing on its own, and then, if necessary, report it to the regulators. ) See id. (asserting that the Fifth Circuit holding has now incentivized individuals to go straight to the SEC, completely bypassing their employer s internal reporting mechanism); Carney, Harker & Light, supra note 147 (proposing that the plain-language approach in Asadi may have struck a significant blow to employers) See supra note 169 and accompanying text (positing that employees may view reporting violation to the authorities as more beneficial) See Doman, supra note 165, at 23 (commenting on how the employer-employee relationship would be affected by requiring employees to report to the SEC in all circumstances).

26 1554 HOUSTON LAW REVIEW [52:5 misconduct Finally, employers should be concerned with the uncertainty of whistleblower treatment if they are subject to a jurisdiction that has not judicially adopted an interpretation. 181 Despite Asadi, some observers recommend that employers promote and strengthen their internal whistleblower programs. 182 Internal whistleblower programs aim to catch employer or corporate misconduct before outside authorities become involved. 183 If the Fifth Circuit interpretation gains momentum, employers may begin to see the advantages and disadvantages of the interpretation. Thus, there are many dynamics for employers to consider. 3. The SEC and the Federal Courts. Employees and employers are not the only stakeholders the SEC and the federal courts are as well. 184 Aside from holding the majority view, 185 the SEC will feel the ripples of the Asadi holding because it is the entity responsible for handling securities law violations. 186 Because the SEC has fixed resources, there are limits on the amount of whistleblower reporting it can handle. 187 If employees are required to report to the SEC, the SEC will receive an inundation of securities violation tipoffs. The increase in reports will further restrict the SEC s fixed resources. 188 Thus, the Asadi approach could cause significant delay and allow prolonged employer or corporate misconduct until the SEC is 180. Foster, supra note 154 (predicting that company s internal compliance programs may struggle because of Asadi); see Corporate Law Securities Regulation Congress Expands Incentives for Whistleblowers to Report Suspected Violations to the SEC, supra note 67, at 1835 ( [T]his potential circumvention of internal reporting could have vast costs and indeed could undermine the very goal that section 922 was enacted to promote the effective and efficient detection of securities laws violations. ) See Phillips & Delikat, supra note 161 (suggesting that companies should bring their best game when faced with whistleblower anti-retaliation suits under Section 78u-6) Foster, supra note 154; Knott, supra note Foster, supra note 154; Knott, supra note See Carney, Harker & Light, supra note 147 (detailing the effects of the debate on various stakeholders) See District Court Adopts Fifth Circuit s Minority Whistleblower View, supra note 128, at 7 8 (recognizing the Fifth Circuit s interpretation as a minority one ) See Dodd-Frank Act, 15 U.S.C. 78u-6(a)(6) (2012) (containing the requirement that whistleblowers must report to the Commission ); see also Dodd-Frank Act, 12 U.S.C. 5301(5) (establishing the Commission as the SEC) Corporate Law Securities Regulation Congress Expands Incentives for Whistleblowers to Report Suspected Violations to the SEC, supra note 67, at See Brower & Johnson, supra note 169, at 4 ( [A]lready overburdened regulators are not equipped to investigate every single allegation of wrongdoing. ); Carney, Harker & Light, supra note 147 (pointing out that [m]any of [the whistleblower] tips are likely to be either unsubstantiated or unrelated to the securities laws ).

27 2015] SHELTER FROM THE RETALIATION STORM 1555 able to investigate. 189 The SEC has already expressed concerns about these adverse ramifications. 190 As for federal courts that have yet to opine on this statutory debate, they will face a tough decision when presented with the issue because support exists on both sides of the argument. 191 For example, since Asadi, several federal district courts have ruled on the issue. Some have followed the SEC s interpretation 192 and others have followed the Fifth Circuit s interpretation. 193 Therefore, federal courts will continue to split on this statutory issue until the Supreme Court or Congress provides an answer. 194 B. Proposed Solutions Which statutory interpretation of the Dodd-Frank Act s Whistleblower Definition and Anti-Retaliation Provision should prevail? This Comment has explored other whistleblower anti-retaliation provisions, 195 the statutory language and history of the relevant Dodd-Frank Act provisions, 196 the developing case law, and the possible implications. 197 Taken as a whole, the statutory issue should be resolved in favor of the SEC interpretation. Therefore, when employees satisfy the third prong of Section 78u-6(h)(1)(A), the anti-retaliation protections should extend to employees regardless of which entity is alerted about the securities law violation. There are several reasons that buttress this outcome. First, the statutory language itself lends support to the SEC interpretation. 198 Despite the Whistleblower Definition in 189. Brower & Johnson, supra note 169, at See U.S. SEC. & EXCH. COMM N, supra note 142, at 6 n.7 (acknowledging the Fifth Circuit s interpretation and its recent support from two federal district courts) See Carney, Harker & Light, supra note 147 (predicting that the Asadi holding will reach beyond the boundaries of the Fifth Circuit) See, e.g., Rosenblum v. Thomson Reuters (Mkts.) LLC, 984 F. Supp. 2d 141, (S.D.N.Y. 2013); Ellington v. Giacoumakis, 977 F. Supp. 2d 42, 45 (D. Mass. 2013) See, e.g., Banko v. Apple Inc., 20 F. Supp. 3d 749, (N.D. Cal. 2013); Wagner v. Bank of Am. Corp., No. 12-cv RBJ, 2013 WL , at *6 (D. Colo. July 19, 2013), aff d on other grounds, 571 F. App x 698 (10th Cir. 2014) See Phillips & Delikat, supra note 161 (reporting that federal courts continue to reach widely divergent statutory interpretations) See discussion supra Part II (explaining the False Claims Act, Sarbanes-Oxley Act, and other relevant statutes) See discussion supra Part III (walking through the two provisions at issue in Section 78u-6 and addressing inconsistencies within the statute) See discussion supra Part IV (explaining how the current divide developed since the passage of the Dodd-Frank Act in 2010); discussion supra Part V.A (analyzing the potential repercussions on employees, companies, the SEC, and federal courts from the Asadi holding) See Dodd-Frank Act, 15 U.S.C. 78u-6(a)(6), (h)(1)(a)(iii) (2012) (the Whistleblower Definition and Anti-Retaliation Provisions).

28 1556 HOUSTON LAW REVIEW [52:5 Section 78u-6(a)(6) that requires reports to be made to the SEC, the Anti-Retaliation Provision in Section 78u-6(h)(1)(A)(iii) contains no such express requirement. 199 Arguably, a plain-language reading of the third prong would lead to a finding that an individual does not have to report to the SEC to be entitled to the anti-retaliation remedies. 200 Therefore, the plain statutory language provides a strong foundation for the SEC interpretation. The second reason in support of this interpretation is the SEC regulation. The SEC is the agency responsible for addressing securities law violations 201 and has issued regulations on this precise issue. 202 Because the SEC plays such an active role in the context of the whistleblower anti-retaliation provisions, it is appropriate to afford the SEC deference. 203 Third, the developing case law has leaned toward reading the third prong of the Anti-Retaliation Provision as an exception that allows employees to report violations to the employer. 204 Finally, the overarching purpose of whistleblower systems supports a broad protection of whistleblowers. 205 Whistleblower systems are aimed to uncover and halt corporate fraud and illegal conduct. 206 Therefore, whistleblower systems should ensure a result in which employees can report internally or externally without forfeiting anti-retaliation defenses. 207 Because substantial disagreement over these particular whistleblower anti-retaliation protections exists and continues to escalate, 208 this Comment proposes two solutions See id See Egan v. TradingScreen, Inc., No. 10 Civ. 8202(LBS), 2011 WL , at *5 (S.D.N.Y. May 4, 2011) (reading Section 78u-6(h)(1)(A)(iii) as a narrow exception to the Whistleblower Definition) U.S.C. 78u-6(a)(6) See 17 C.F.R F-2(b) (2013) (setting forth in clear terms who can receive anti-retaliation protection) See Murray v. UBS Sec., LLC, No. 12 Civ. 5914(JMF), 2013 WL , at *7 (S.D.N.Y. May 21, 2013) (pointing out that the SEC enforces the statute at issue and that it possesses considerable experience and expertise when it comes to securities laws) See, e.g., Rosenblum v. Thomson Reuters (Mkts.) LLC, 984 F. Supp. 2d 141, 148 (S.D.N.Y. 2013) (adopting the SEC interpretation); Murray, 2013 WL , at *7 (deferring to the SEC); Egan, 2011 WL , at *5, *7 (reading Section 78u-6(h)(1)(A)(iii) as an exception) See Moberly, supra note 148, at (discussing how anti-retaliations were designed to help whistleblowers cope with hostile employers) See id See id Knott, supra note 126.

29 2015] SHELTER FROM THE RETALIATION STORM Judicially Created Implied Exception. The first solution is for federal courts to uniformly interpret the third prong of Section 78u-6(h)(1)(A) 209 as an implied exception to the requirement that employees report to the SEC under the Whistleblower Definition. Although some federal district courts follow this approach, 210 no federal court of appeals except the Fifth Circuit has opted to follow this approach. 211 Because a judicially created implied exception might only be effective by persuading appellate courts or the Supreme Court to adopt it, there will likely need to be further action Congressional Action by Amendment. The second solution to accomplish a result that would extend antiretaliation protections to individuals reporting internally is congressional action by amendment. 213 This could be accomplished in one of two ways. First, Congress could amend Section 78u-6(a)(6) by expanding the Whistleblower Definition to employees who report to the SEC or to the employer. 214 Second, Congress could rephrase Section 78u-6(h)(1)(A), the Anti-Retaliation Provision, as an express exception to the Whistleblower Definition. 215 Either congressional revision will accomplish this proposal by making it clear that employees 209. See Dodd-Frank Act, 15 U.S.C. 78u-6(h)(1)(A)(iii) (2012) (providing whistleblower protection in retaliation suits to employees who make disclosures under four different categories) E.g., Rosenblum v. Thomson Reuters (Mkts.) LLC, 984 F. Supp. 2d 141, 148 (S.D.N.Y. 2013); Murray v. UBS Sec., LLC, No. 12 Civ. 5914(JMF), 2013 WL , at *7 (S.D.N.Y May 21, 2013); Egan v. TradingScreen, Inc., No. 10 Civ. 8202(LBS), 2011 WL , at *5, *7 (S.D.N.Y. May 4, 2011) Banko v. Apple Inc., 20 F. Supp. 3d 749, 756 (N.D. Cal. 2013); see Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620, 630 (5th Cir. 2013) (creating the minority view on this issue) The courts of appeals have binding authority on the district courts within their respective jurisdictions. Therefore, a court of appeals interpretation will have a stronger impact for carrying out this proposal. Furthermore, because the Supreme Court often chooses cases to resolve circuit splits, an interpretation from the highest court would be an even more effective method for achieving this proposal. See STEPHEN ELIAS & NOLO EDS., LEGAL RESEARCH: HOW TO FIND & UNDERSTAND THE LAW (2012) (explaining the interplay in the federal courts system) See Brower & Johnson, supra note 169, at 4 (advancing that Congress could amend the statutory language in a way that lends some common sense to the policy challenges at issue ); Corporate Law Securities Regulation Congress Expands Incentives for Whistleblowers to Report Suspected Violations to the SEC, supra note 67, at 1836 (suggesting that amending the current legal framework would help further the goals of whistleblower systems) See Corporate Law Securities Regulation Congress Expands Incentives for Whistleblowers to Report Suspected Violations to the SEC, supra note 67, at 1836 (proposing action by amendment in general) Id.

30 1558 HOUSTON LAW REVIEW [52:5 reporting employer misconduct will receive protection from employer retaliation. VI. CONCLUSION As the rift surrounding the whistleblower anti-retaliation provisions of the Dodd-Frank Act grows wider 216 and more employees claim employer retaliation for whistleblowing, it will only be a matter of time before the Supreme Court or Congress take action. 217 When the time comes, there will be at least two solutions to ensure the protection of employees who expose employer misconduct. First, the federal courts, preferably the Supreme Court, could interpret the Anti-Retaliation Provision as containing an implied exception to the Whistleblower Definition. 218 Second, Congress could amend the statute by either (1) expanding the Whistleblower Definition to encompass internal whistleblowers; or (2) rewriting the Anti-Retaliation Provision as an express exception to the Whistleblower Definition. 219 With these proposals, employees contemplating blowing the whistle for securities law violations internally or externally will know their anti-retaliation protections remain intact. Janna Mouret 216. See discussion supra Part IV.C (analyzing the how the debate is developing since the Fifth Circuit decision in Asadi) See discussion supra Part IV.D (comparing the SEC and Fifth Circuit interpretation and summarizing the current legal landscape of this issue) See discussion supra Part V.B.1 (discussing how the federal court system can resolve the issue) See discussion supra Part V.B.2 (proposing two paths for Congress to amend the statute).