SDNY Reaffirms Dodd-Frank Protection of Internal Whistleblowers

Securities and financial services whistleblowers achieved another important victory in late October 2013 when the U.S. District Court for the Southern District of New York (“SDNY”) held in Rosenblum v. Thomson Reuters (Markets) LLC that the anti-retaliation provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) protects employees who suffer retaliation when they complain internally about fraud.

The lawsuit was filed by Mark Rosenblum, a former “redistribution specialist” for Thomson Reuters (“Thomson”). During his time at Thomson, Rosenblum learned of a new company product that would “[gauge] consumers’ attitudes and expectations about the U.S. economy and the public’s attitude about future changes of economic expectation.” Thomson planned to release the information gathered by its new product in tiers, whereby certain levels of Thomson subscribers would receive the information sooner than other subscribers. According to Rosenblum, the tiered release of information gave those subscribers who received the information soonest an advantage in making financial transactions based on that information. Rosenblum believed that this practice constituted insider trading.

From May to late June of 2012, Rosenblum raised insider trading concerns with various supervisors and compliance personnel within Thomson, but was repeatedly rebuffed by management. Finally, in late June 2012, Rosenblum contacted the Federal Bureau of Investigation (“FBI”) to detail Thomson’s ongoing practice, which he believed violated the Securities and Exchange Act of 1934. That same day, he informed Thomson management that he had reported the company’s practices to the FBI. Thomson terminated Rosenblum’s employment several weeks later.

Rosenblum thereafter sued his former employer in SDNY, alleging that his discharge violated the Dodd-Frank Act’s anti-retaliation provision. In moving to dismiss Rosenblum’s lawsuit, Thomson contended that Rosenblum’s claim lacked legal merit because, according to Thomson, the Dodd-Frank Act does not protect employees who complain internally (as opposed to externally, i.e., to the SEC). In support of this argument, Thomson relied on the U.S. Court of Appeals for the Fifth Circuit’s holding in Asadi v. G.E. Energy (USA), L.L.C. At issue in Asadi was whether the Dodd-Frank Act’s anti-retaliation provision covers internal complaints, an analysis that required the Fifth Circuit to address an arguable conflict between the Act’s statutory definition of “whistleblower” and the scope of protected activity under the Act.

The Dodd-Frank Act defines “whistleblower” as “any individual who provides . . . information relating to a violation of the securities laws to the [SEC].” (Emphasis added). However, the Dodd-Frank Act’s whistleblower protection provision further provides that an employer cannot retaliate against a “whistleblower” who makes “disclosures that are required or protected under the Sarbanes-Oxley Act of 2002[.]” Because the Sarbanes-Oxley Act protects employees who complain internally about various forms of fraud, the Dodd-Frank Act’s definition of “whistleblower” – i.e., someone who complains externally to the SEC – arguably conflicts with the fact that the statute also protects employees who make disclosures protected under the Sarbanes-Oxley Act (i.e., internal disclosures to management).

In 2011, the Securities and Exchange Commission (“SEC”) resolved this conflict in favor of affording greater protection to whistleblowers. The SEC promulgated a formal rule stating that the Dodd-Frank Act’s whistleblower retaliation provision covers all reports of fraud that are also covered under the Sarbanes-Oxley Act’s whistleblower retaliation provision, including internal reports. Despite the existence of the SEC rule, the Fifth Circuit in Asadi determined that the Dodd-Frank Act’s “unambiguous” statutory language makes clear that the Act protects only employees complain externally to the SEC.

The SDNY court in Rosenblum rejected the Fifth Circuit’s reasoning and, like the SEC, found that the Dodd-Frank Act’s anti-retaliation provision protects employees who make internal complaints. In support of this holding, the Rosenblum court pointed to an earlier SDNY ruling (Murray v. UBS Securities, LLC,), where the court had similarly found that internal reports of fraud were protected under the Dodd-Frank Act’s whistleblower retaliation provision.

Given that the SDNY is the federal judicial district which encompasses all of Manhattan, the SDNY’s rejection of Asadi and continued commitment to protecting whistleblowers is a boon for the many securities and financial services whistleblowers working in the nation’s financial epicenter.