Fifth Circuit Holds that Employee's Internal Complaints of Securities Violations Do Not Qualify for Dodd-Frank Whistleblower Protection
In a recent opinion of the Fifth Circuit Court of Appeals, the federal appellate court held that a former employee terminated after making internal complaints to his employer about possible securities violations, but who never made complaints to the S.E.C., was not a whistleblower under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd Frank").
Khaled Asadi was hired by G.E. Energy ("G.E.") in 2006 as its Iraq Country Executive. In 2010, Iraqi officials reported to Asadi a concern that a new female G.E. employee had been hired to gain favor with an Iraqi official in negotiating a joint venture agreement. Believing that this conduct could potentially violate the Foreign Corrupt Practices Act, Asadi reported this information to his supervisor and other G.E. officials. Thereafter, Asadi received a negative performance review and was terminated within one year following the report.
Asadi sued claiming that his termination violated the Dodd Frank whistleblower-protection provisions. G.E. moved to dismiss on the grounds that because his complaint was made internally to G.E., Asadi did not qualify as a Dodd Frank Whistleblower and arguing that the Dodd Frank Act did not apply extraterritoriality. The trial court concluded that the Dodd Frank Act did not apply to whistle-blowing activity outside the U.S. and dismissed the complaint without addressing whether Asadi was a whistleblower.
On appeal, the Fifth Circuit examined the provisions of the Dodd Frank Act to determine whether Asadi was entitled to whistleblower protections. First, the court analyzed the statute's definition of the term "whistleblower" and concluded that the statute mandates a report to the SEC to be included within the term's definition. Second, the court rejected an SEC regulatory definition of "whistleblower" concluding that the Commission's definition improperly expanded the Congressional definition of a whistleblower and was therefore entitled to no deference. Because Asadi had made no report of securities violations to the SEC, he was not a Dodd Frank whistleblower. Stated another way, the court held that the "whistleblower-protection provision creates a private right of action only for individuals who provide information relating to a violation of the securities laws to the SEC."
The takeaway from Asadi is that an employee in Texas, Louisiana and Mississippi seeking the whistleblower protections of the Dodd Frank Act (and the incentive programs) must make a report of alleged securities violations directly to the SEC.
You download a complete copy of Asadi v. G.E. Energy (U.S.A), LLC here.
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