SEC Files Brief Arguing that Internal Reporting Should Qualify for Whistleblower
The SEC has filed an amicus curiae brief arguing that an internal employee should qualify as a whistleblower protected from job retaliation where the employee reports the matter internally. A recent case in the Fifth Circuit held that a person could qualify as a whistleblower only if such person reported to the SEC (See blog.cipperman.com/2013/08/06/federal-court-says-that-dodd-frank-only-protects-sec-reporting-whistleblowers.aspx). The Fifth Circuit held that the SEC’s rules broadening the definition of whistleblower to include those that reported internally were inconsistent with the Dodd-Frank Act. The SEC argues that requiring a person to report to the SEC would undermine the internal compliance infrastructure.
OUR TAKE: The SEC is right. Requiring a whistleblower to report to the SEC, rather than to his/her own management, in order to avoid job retaliation undermines the purpose of Dodd-Frank’s whistleblower provisions. A potential whistleblower may be more inclined to report violations to senior management with a view to protecting his/her organization rather than reporting to the SEC and thereby becoming a government informer against his/her employer. All of this doesn’t really help chief compliance officers who are generally prohibited from becoming whistleblowers under the rules.