On Aug. 4, 2015, the SEC issued guidelines clarifying who benefits from SEC whistleblower anti-retaliation protection. The clarification was needed because the whistleblower statutes in the recently enacted Dodd-Frank Act are perceived by some as sufficiently ambiguous as to create splits between courts on the question.

One interpretation of the Dodd-Frank whistleblower statutes favors a finding that only whistleblowers who make an external complaint to the SEC are protected from employers who retaliate against whistleblowers.

Another interpretation of the statute favors external whistleblowers, as well as whistleblowers that make internal complaints within their own company objecting to improper practices.

The key reason for including whistleblower anti-relation protection to internal complainants as well as external complainants is that it achieves the policy aims of the SEC whistleblower law. One of those policy aims is to encourage the reporting of wrongdoing both within companies and to the SEC. The program in fact provides additional incentives for such internal reporting.

The courts will make the final decision as to whether people who make internal complaints to should have just as much protection from retaliation as those who complain directly to the SEC. There is currently a divide among courts on the question, a question which may soon reach the U.S. Supreme Court.

The Dodd Frank Whistleblower Program

The Dodd-Frank Wall Street Reform and Consumer Protection Act became U.S. law on July 21, 2010 in response to the Great Recession of 2008. The law was a broad and sweeping change that affected all federal financial regulatory agencies. Its aim was to encourage financial stability by protecting the American taxpayer and consumers from abusive financial practices.

The act’s whistleblower provisions (known by some as the “Wall Street Tip-Off Law”) give whistleblowers incentives to report fraud to the SEC (Securities and Exchange Commission) and to the CFTC (Commodity Futures Trading Commission) and give protection against retaliation and disclosure of their identities. Given widespread fraud in the areas of securities and commodities, this law has provided enormous benefit to the public since it was passed under both the Dodd-Frank SEC Whistleblower Program (15 U.S.C. § 78U-6 ) and the CFTC Whistleblower Program, (7 U.S.C. § 26).

The anti-retaliation provisions of the Dodd-Frank Act and similar anti-retaliation provisions in other laws such as the False Claims Act are meant to protect whistleblowers from retaliatory actions by the companies for reporting of wrongdoing. When companies can fire, suspend or punish a whistleblower without the ability of the whistleblower to sue for such retaliation, then whistleblowers are discouraged from exposing these wrongs because their jobs and careers are in jeopardy.

More on the New SEC Guidelines

The SEC recognized that anti-retaliation is just one of three core benefits that whistleblowers should have. Monetary rewards in the form of a percentage of the sum recovered is another crucial incentive. The confidentiality of the whistleblower is the third benefit.

The SEC's new rules hold that the Dodd-Frank whistleblower anti-retaliation provisions apply to both external and internal reports. The new rules further state that to get the award and to preserve confidentiality (the other two components), the misconduct does have to be reported SEC.

The Statutory Ambiguity

In announcing its new rules, the SEC reviewed the various statutes of the Dodd-Frank Act's whistleblower laws. The confusion in the statutes comes from the fact that there are different provisions that reference anti-retaliation protection and alternate definitions of who qualifies as whistleblower.

Section 21F allows for SEC whistleblower actions and was added to the Securities Exchange Act of 1934 through the 2010 Dodd-Frank reforms.

The rules and statutes favoring the narrow “external reporting only” view

These rules indicate that the whistleblower has to report directly to the Securities and Exchange Commission.

• Rule 21F-9 (a) requires that an individual file a report directly with the SEC to be considered a whistleblower and to be allowed a monetary reward.
• Section 21F (a) (6) says – “The term ‘whistleblower’ means any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.

The rules and statute favoring the broader “internal and external reporting” view.

These sections indicate that both internal and external reporting is retaliation-protected.

• Section 21F-2 (b) (1), states that the anti-retaliation protections apply whether or not you satisfy the requirements, procedures and conditions to qualify for an award. This statute also references the following statute - 21F (h) (1) (A):
• Section 21F (h) (1) (A) of the Securities Exchange Act of 1934 states the anti-retaliation provisions apply to both the external view and the internal view. The internal view language is defined as whistleblower acts:
• in initiating, testifying in, or assisting in any investigation or administrative action of the Commission based upon or related to such information or

iii. in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.), the Securities Exchange Act of 1934   (15 U.S.C. 78a et seq.), including section 10A(m) of such Act (15 U.S.C. 78f(m)), section 1513(e) of title 18, United States Code, and any other law, rule, or regulation subject to the jurisdiction of the Commission.

The SEC found that the latter statutes, allowing for anti-retaliation protection for internal reports as well as external reports, were more controlling.

Key Provisions of the Law

The Dodd-Frank regulations and statute can be viewed here

http://www.hbsslaw.com/sec-whistleblowers/dodd-frank-sec-whistleblower-statute

http://www.hbsslaw.com/sec-whistleblowers/dodd-frank-sec-whistleblower-regulations

21F-2 (b) (1)

• 240.21F-2 Whistleblower status and retaliation protection.

(2)    To be eligible for an award, you must submit original information to the Commission in accordance with the procedures and conditions described in §§ 240.21F-4, 240.21F-8, and 240.21F-9 of this chapter.

(b)   Prohibition against retaliation: (1) For purposes of the anti-retaliation protections afforded by Section 21F (h) (1) of the Exchange Act (15 U.S.C. 78u-6(h)(1)), you are a whistleblower if:

(i)   You possess a reasonable belief that the information you are providing relates to a possible securities law violation (or, where applicable, to a possible violation of the provisions set forth in 18 U.S.C. 1514A (a)) that has occurred, is ongoing, or is about to occur, and;

(ii)    You provide that information in a manner described in Section 21F (h) (1) (A) of the Exchange Act (15 U.S.C. 78u-6(h)(1)(A)).

(iii)    The anti-retaliation protections apply whether or not you satisfy the requirements, procedures and conditions to qualify for an award.

21F (h) (1) (A)

Protection of whistleblowers.

• 78u-6. Securities whistleblower incentives and protection

(h)   Protection of whistleblowers.

(1)    Prohibition against retaliation.

(A)    In general. No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower—

(i)    in providing information to the Commission in accordance with this section;

(ii)   in initiating, testifying in, or assisting in any investigation or judicial or

administrative action of the Commission based upon or related to such information; or

(iii)    in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.), the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), including section 10A(m) of such Act (15 U.S.C. 78f(m)), section 1513(e) of title 18, United States Code, and any other law, rule, or regulation subject to the jurisdiction of the Commission.

Rule 21F-9 (a)

• 240.21F-9 Procedures for submitting original information.

(a)  To be considered a whistleblower under Section 21F of the Exchange Act (15 U.S.C. 78u-6(h)), you must submit your information about a possible securities law violation by either of these methods:

(1)  Online, through the Commission's Web site located at http://www.sec.gov;  or

(2)  By mailing or faxing a Form TCR (Tip, Complaint or Referral) (referenced in § 249.1800 of this chapter) to the SEC Office of the Whistleblower, 100 F Street NE., Washington, DC 20549-5631, Fax (703) 813-9322.

21 F (a) (6)

(6)   Whistleblower. The term "whistleblower" means any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.