Securities Litigation

There's a developing circuit split over whistleblower standing for retaliation claims. A decision this week extended that split to U.S. district courts within Tennessee, too. In Verble v. Morgan Stanley Smith Barney, LLC, No. 3:15-CV-74-TAV-CCS (Dec. 8, 2015 USDC EDTN), the Eastern District of Tennessee joined with the Fifth Circuit view that Dodd-Frank whistleblowers must report to the SEC to have standing. An earlier decision from the Middle District of Tennessee had sided with the Second Circuit's view, deferring to the broader language of the SEC regulations that would encompass those reporting to any law-enforcement agency. Sarbanes-Oxley's whistleblower provisions apply to "employees" of publicly-traded companies, but require a whistleblower to exhaust his administrative remedies by filing first with OSHA. 18 U.S.C. § 1514A. Dodd-Frank's provisions define "whistleblower" as "means any individual who provides…information … to the Commission." 15 U.S.C. § 78-6(a)(6). See generally 15 U.S.C. § 78u-6(h)(1)(A). However, the SEC's implementing regulations go beyond the statutory language to include "individuals who report to person or governmental authorities other than the Commission." 17 C.F.R. § 240.21F-2; Adopting Release, 76 Fed. Reg. 34300-01, 2011 WL 2293084, at 34304 (2011). So what's it to be: Congress's or the SEC's version? Those who say the statute is vague and the SEC knows better (with lipstick, that pig's called "Chevron deference"), go with the broader reach to include internal whistleblowers or those reporting to other law enforcement agencies. In that group are the Second Circuit and some district courts, including the Middle District of Tennessee. See, e.g., Berman v. Neo@Ogilvy, LLC, 801 F. 3d 145 (2^nd Cir. 2015); Nollner v. S. Baptist Convention, Inc., 852 F. Supp. 2d 986, 995 (M.D. Tenn. 2012). Those who believe Congress meant what it said limit Dodd-Frank retaliation standing to those whistleblowers who first report to the SEC. They are the Fifth Circuit and some other district courts, now joined by the Eastern District of Tennessee. See, e.g., Asadi v. GE Energy (USA) LLC, 720 F. 3d 620 (5^th Cir. 2013); Verble v. Morgan Stanley Smith Barney, LLC, No. 3:15-CV-74-TAV-CCS (Dec. 8, 2015 USDC EDTN). In the recent Tennessee case, the plaintiff Verble alleged he was an FBI informant and therefore fell within the catch-all provisions of Section 78-6(h)(1)(A)(iii) protecting "whistleblower" disclosures otherwise protected under Sarbanes-Oxley or 15 U.S.C. § 1513(e)(witnesses and informants). But he had not filed any whistleblower complaint with OSHA (Sarbanes-Oxley) before suit or reported to the SEC before termination, so the Court dismissed his action. Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas and Louisiana. He has over 29 years' experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile. © 2015 by Thomas K. Potter, III (all rights reserved).