A decision this week by the U.S. Court of Appeals for the Fifth Circuit narrowed the scope of Dodd-Frank protections for one whistleblower, and potentially for the many others who blow the whistle to their employers.
Meanwhile, a recent survey showed that whistleblowers within the financial system are needed more than ever.
In a ruling that contradicted previous decisions by the lower courts, the Fifth Circuit held that employees who report violations internally are not entitled to the anti-retaliation rights established in the 2010 Dodd-Frank Act.
Under the Dodd-Frank Wall Street Reform and Consumer Protection provisions, which the Project On Government Oversight strongly supported, employees were given financial incentives to report wrongdoing to the Securities and Exchange Commission (SEC) as well as increased anti-retaliation protections. Prior rulings by the lower courts echoed the SEC’s regulations in extending the protections to individuals who report wrongdoing within their companies.
The Fifth Circuit rejected these interpretations, ruling that Khaled Asadi—a former employee of G.E. Energy LLC who was fired after he told his supervisor about a possible violation of the Foreign Corrupt Practices Act—is not entitled to the Dodd-Frank protections because he didn’t report directly to the SEC. Many companies have devoted extensive resources to establishing internal reporting programs, but the Fifth Circuit’s ruling may force whistleblowers to go directly to the government if they want to receive full protection. The Fifth Circuit made its decision based on a narrow reading of the Dodd-Frank Act, even though it is clear from the legislative and rulemaking record that both Congress and the SEC intended to expand protections for whistleblowers, not curb them.
The ruling could have adverse impacts on the rights and recourses of whistleblowers at a time when fraud, waste, and abuse still run rampant within the financial system. A law firm dedicated to representing SEC whistleblowers recently conducted a study in which they confidentially polled financial professionals on corporate ethics.
From Labaton Sucharow LLP:
According to the independent survey, 52% of the respondents believed that their competitors engaged in illegal or unethical behavior while 24% felt employees in their own company had engaged in similar misconduct. An astonishing 23% reported that they had observed or had first-hand knowledge of wrongdoing in the workplace and 29% believed that financial services professionals may need to engage in illegal or unethical behavior to be successful. An alarming 28% felt the industry does not put the interests of clients first and 24% admitted they would engage in insider trading if they could get away with it.
Even though 24% of the respondents said they fear retaliation, 89% said that they would be willing to report wrongdoing due to the protections and incentives offered by whistleblower programs such as the one run by the SEC.
In passing the Dodd-Frank Act on the heels of a financial crisis fueled by Wall Street corruption, Congress intended to offer far-reaching protections to those who blow the whistle. The Labaton Sucharow survey—which showed almost a 100% increase over last year in the number of respondents who have confidence in financial regulators like the SEC—demonstrates the success of such programs. POGO is disappointed that the Fifth Circuit Court eroded whistleblower protections on the basis of what is essentially a technicality when instead, we should be continuing to support and protect those who expose the misconduct that has beset our financial system.
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