On August 4, 2015, the SEC issued an “Interpretation of the SEC’s Whistleblower Rules Under Section 21F of the Securities Exchange Act of 1934.” (pdf).  Unsurprisingly, and consistent with the position that it has been taking in amicus briefs on the issue, the SEC states that a whistleblower need not report suspected wrongdoing to

by Allen B. Roberts, Frank C. Morris, Jr., and Michael J. Slocum

In what has been reported to be the first decision permitting a retaliation claim under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) to survive dismissal, the U.S. District Court for the District of Connecticut (“Court”) has adopted a broad view of who qualifies as a “whistleblower” under that law. The Court rejected an employer’s request for a literal construction of Dodd-Frank’s definition and protection of whistleblowers, and instead relied upon what it saw as an ambiguity in the statutory language to endorse the Security and Exchange Commission’s (“SEC” or “Commission”) Final Rule implementing the whistleblower provisions of Dodd-Frank (“Final Rule”) that liberally expands protections to individuals who do not fit within the statutory definition of “whistleblowers.” In Kramer v. Trans-Lux Corp., 11-cv-01424 (D. Conn. Sept. 25, 2012), the Court declined to dismiss the lawsuit of an employee who claimed a “reasonable belief” of a “possible” securities law violation governed by the Sarbanes-Oxley Act but did not follow explicit statutory procedures for reporting it.

Kramer’s broad interpretation of Dodd-Frank’s whistleblower protection provisions may not carry the day upon review by a Circuit Court of Appeals and in other district courts, but for now, it can be anticipated that employees claiming retaliation under Dodd-Frank will point to Kramer (and to two other supportive district court cases that themselves did not advance for other reasons) in an effort to survive motions to dismiss.

Kramer Claimed That He Was Fired in Retaliation for Disclosing Alleged Violations of Trans-Lux’s Employee Pension Plan to the Company’s Board and the SEC

Richard Kramer had been the Vice President of Human Resources and Administration of Trans-Lux Corp. (“Trans-Lux”) for nearly two decades. Among his responsibilities were managing his employer’s relationship with the firm, overseeing the company’s ERISA-governed employee pension plan, ensuring compliance with applicable laws and regulations, and serving as plan fiduciary.

According to Kramer’s lawsuit, starting in March 2011, he began to voice a number of alleged concerns regarding composition of the pension plan committee, potential conflicts of interest in the administration of plan investment funds, and required approval and filing of plan amendments and reports. After raising his concerns with the CFO to whom he reported and the CEO, Kramer notified the audit committee of Trans-Lux’s board of directors in May 2011, and followed that with a letter to the SEC. Kramer claims that he began receiving letters of reprimand within hours of sending his communication to the audit committee and that a loss of support and stripping of job responsibilities followed. In July 2011, Trans-Lux announced that July 22, 2011, would be the last day of employment for all human resources personnel, including Kramer.

Kramer sued under, among other statutes, Dodd-Frank’s whistleblower protection provisions, codified at 15 U.S.C. § 78u-6, alleging that he had been terminated in retaliation for reporting his concerns about the company’s pension plan.

Continue Reading Dodd-Frank’s Ambiguous Definition of “Whistleblower” Construed Broadly to Favor Employee Protection