NY Judge Nixes Employee's Dodd-Frank Whistleblower Claims

A New York federal judge on Wednesday dismissed claims by a Transatlantic Reinsurance Co. employee that the company violated the whistleblower provision of the Dodd-Frank Act by retaliating against her after she complained that a company executive had conflicts of interest, saying the alleged conduct does not constitute securities fraud.

U.S. District Judge George B. Daniels agreed with Transatlantic that the allegation by Ileana Diaz, former assistant manager of its claims department, that the company violated the Dodd-Frank Act’s whistleblower protection provisions because she was retaliated against should be dismissed because Diaz did not engage in activity protected by the Dodd-Frank or Sarbanes-Oxley Acts, such as participating in a U.S. Securities and Exchange Commission probe or making disclosures to internal supervisors related to mail, wire or securities fraud.

“Plaintiff's allegations ultimately fail to meet the l2(b)(6) standard for a whistleblower retaliation claim because plaintiff has not alleged any facts regarding the executive VP and defendant's conduct that could support an objectively reasonable belief that such conduct constitutes securities fraud,” the judge said. read more »

Merrill Lynch Pays $415M For Misusing Customer Cash

Merrill Lynch has agreed to pay $415 million and issue a rare acknowledgement of wrongdoing for misusing customer cash on options trades that allowed it to free up billions of dollars that should have been held in a reserve account, the U.S. Securities and Exchange Commission said Thursday.

Merrill Lynch Pierce Fenner & Smith Inc. will pay $57 million in disgorgement and interest and a $358 million civil penalty while admitting to wrongdoing. The SEC alleged that the bank violated the SEC's Customer Protection Rule by engaging in complex options trades that artificially reduced the amount it needed to keep in a reserve account, freeing up cash it used for its own trading activities. The SEC also initiated an administrative proceeding against Merrill Lynch’s former head of regulatory reporting on Thursday.

In a separate proceeding also announced Thursday, Merrill Lynch agreed to pay $10 million to the SEC and $5 million to the Financial Industry Regulatory Authority to settle charges it made misleading statements in offering materials for structured notes linked to the bank’s proprietary volatility index, allegations Merrill Lynch neither admitted nor denied.

Andrew Ceresney, the director of the SEC’s Enforcement Division, said at a press conference Thursday that the $415 million deal is “by far the largest customer protection settlement in SEC history,” and said the fine was increased because Merrill Lynch failed to report the violations to regulators. read more »