In an unusual request to a trial court, the U.S. Securities and Exchange Commission moved a California federal court on August 7th, 2015, to allow the commission to file an amicus brief on behalf of Sanford Wadler, previously in-house counsel for Bio-Rad Laboratories, Inc., who is suing his former employer for retaliation in violation of the Dodd-Frank Act. Wadler alleges he was fired for reporting suspicion of foreign bribery to Bio-Rad. In the proposed amicus brief, the SEC would ask the court to adopt its position that the Dodd-Frank Act’s whistleblower protections extend to internal reporting, and not just to employees who report suspected securities violations (including foreign bribes) to the SEC.
The SEC’s move in the Wadler case follows its issuance of an interpretive guidance on August 4, 2015, which made clear the commission’s position on the protection of internal reporting. Noting that the relevant provisions of the Dodd-Frank Act are ambiguous, the SEC has filed amicus briefs in a number of federal appeals courts arguing that the ambiguity can be resolved consistent with Congressional intent only by granting protection to internal whistleblowers. Most courts have agreed, but several others, most notably the U.S. Court of Appeals for the Fifth Circuit in the Asadi case, have held that the Dodd-Frank protections cover only those employees who actually report to the SEC and not those who report to their employers.
The California federal court’s ruling on this question will likely determine whether Wadler’s case against Bio-Rad can proceed. In 2014, the company paid $55 million to settle the federal government’s allegations that it had violated the Foreign Corrupt Practices Act, and it was in part this record that led Wadler to investigate what he suspected were other such violations. After Bio-Rad terminated his employment, Wadler filed suit in May 2015, claiming Bio-Rad had fired him for reporting internally that the company was bribing Chinese officials. Bio-Rad has filed a motion to dismiss Wadler’s case on the grounds that the Dodd-Frank Act protects only employees who report their concerns to the SEC, which Wadler did not. The SEC hopes that its amicus brief and its analysis of the statutory language aid the court in understanding that Bio-Rad’s (and the Fifth Circuit’s) interpretation of the law makes no sense, as it would undermine the emphasis on encouraging the internal reporting that is a cornerstone of the SEC Whistleblower Program that and the related protections for employees.
In last week’s interpretive guidance and in its bid to influence the outcome of a motion to dismiss pending in a federal trial court, the SEC continues to stand up for the rights of employee-whistleblowers. “The determination that the SEC is showing on this issues gives the commission a lot of credibility in the eyes of would-be whistleblowers,” said KMB partner David J. Marshall, who specializes in the representation of individuals before the SEC Whistleblower Program. “The law remains unsettled, but knowing that the SEC supports them in the workplace can be a very encouraging factor in the decision of an employee to oppose their employer’s violations of U.S. securities laws. Making sure these insiders are free to speak their minds to the boss is an important protection for the investing public, and is crucial to corporate accountability.”