Dodd-Frank Whistleblower Allowed to Proceed With Lawsuit Despite Timing Problems

Investment analyst Roseanne Ott will be allowed to proceed with her lawsuit against investment adviser Fred Alger Management, Inc. (“FAM” of “the Company”), alleging whistleblower retaliation in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”). On September 27, 2012, the District Court for the Southern District of New York denied FAM’s motion to dismiss Ott’s Dodd-Frank complaint, concluding that Ott had adequately pled her allegations that FAM dramatically decreased her compensation and later terminated her in retaliation for her reporting concerns about the company’s trading policies to the Securities and Exchange Commission (“SEC”).

Ott had been working for FAM for eight years when, in April 2010, the Company implemented a new trading policy which Ott argued placed extraordinary restrictions on her ability to operate profitably Alger’s Health Sciences Fund (“HS Fund”), which she managed. When her concerns were allegedly ignored by FAM, Ott contacted the Securities and Exchange Commission (“SEC”). Shortly thereafter, in June 2010, FAM’s counsel “self-reported” Ott’s complaint about the policy to the SEC. In August 2010, Ott met with several members of the SEC’s Division of Enforcement and provided them with information regarding her hampered ability to manage the HS fund. In September 2010, Ott filed a formal complaint with the SEC.

Ott alleged that later in September, her supervisor remarked to a co-worker that “[Ott] is wrong … [and] is gonna start feeling the heat.” Ott’s supervisor allegedly then embarked on a campaign to force her resign. The Company reduced Ott’s bonus by 92% from the previous year and demoted her. Eventually, just a few months later, the Company fired Ott in January 2011.

FAM argued in its motion to dismiss that Ott had not engaged in protected activity under Dodd-Frank because: (1) her initial report to the SEC was made before the statute’s effective date; and (2) she has not alleged a reasonable belief that the trading policy violated the securities laws. FAM argued that Ott’s initial report to the SEC, as well as its subsequent self-reporting, were both made before Dodd-Frank was passed in July 2010.

The court rejected FAM’s argument. The court first reasoned that the language of the Dodd-Frank anti-retaliation provision does not require an individual to provide “original information.” Moreover, the court reasoned that because Ott provided information not previously known by the SEC during her August 4 meeting, she would qualify for protection even if the statute did require that new information be proffered. Lastly, the court noted that there were multiple precedents for the principle that, at least in the context of the Sarbanes-Oxley Act, an employee who reported conduct made unlawful by the Act prior to the Act’s passage would still be protected by the anti-retaliation provision if the alleged retaliation did not take place until after the bill had been passed.

The court also rejected FAM’s argument that Ott had failed to allege a reasonable belief that the trading policy in question violated securities laws. The court noted that “While other inferences from the facts also may be plausible, a court may not properly dismiss a complaint that states a plausible version of the events merely because the court finds a different version more plausible.” Finding no basis upon which to dismiss Ott’s Dodd-Frank complaint, the court denied FAM’s motion.