The U.S. Court of Appeals for the Fifth Circuit has ruled that the Dodd-Frank Act’s anti-retaliation provisions do not protect whistleblowers who report their claims internally but do not provide information directly to the SEC.  In the case, a corporate executive reported possible violations of the Foreign Corrupt Practice Act to his supervisor and an internal ombudsman.  After subsequent termination, the plaintiff claimed that his employer violated Dodd-Frank’s anti-retaliation provisions.  The Court held that the plaintiff did not qualify as a “whistleblower” under the statute because he did not report directly to the SEC.  The Court based its decision on a very strict reading of the statute and rejected SEC rules which would have allowed the plaintiff’s claim.

OUR TAKE:  Although we think the whistleblower statute was ill-considered, we think the Court’s decision is incorrect and will lead to negative unintended consequences.  The Court is encouraging exactly the behavior that the industry sought to avoid i.e. going to the SEC before working with the internal process.  Also, compliance officers should note that they have no anti-retaliation employment protection for statements made in compliance reports.