Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

There has been a debate about whether a whistleblower must report information about a violation of securities laws to the SEC, as opposed to internal reporting, to qualify for protection under the anti-retaliation provisions of the Dodd-Frank Act.  The debate is demonstrated by the Fifth Circuit’s decision in Asadi v. G.E. Energy (USA), LLC.

As a result of the debate the SEC has issued interpretive guidance to add in its own two cents and to reign in further decisions tending in the direction of Asadi.  According to the SEC, the Dodd-Frank Act was ambiguous, and to clarify the ambiguity it included two separate definitions of a “whistleblower” in SEC rules.  One definition, which is set forth in Rule 21F-2(a), is meant to apply only to the award and confidentiality provisions of Section 21F of the Exchange Act.  This definition requires reporting to the SEC in under Rule 21F-9(a). The second definition, which is set forth in Rule 21F-2(b)(1), and which is designed to implement the anti-retaliation provisions, does not require reporting to the SEC.

The interpretive guidance states that for purposes of implementing the anti-retaliation provisions, an individual’s status as a whistleblower does not depend on adherence to the reporting procedures in Rule 21F-9(a) and is determined solely by Rule 21F-2(b)(1). The SEC offers the following reasoning as justification:

  • The fact that Rule 21F-2(b)(1) expressly and specifically applies in the employment retaliation context demonstrates that it should control over Rule 21F-9(a).
  • The contrast between Rule 21F-2(a) and Rule 21F-2(b)(1) further supports the interpretation that the availability of employment retaliation protection is not conditioned on an individual’s adherence to the Rule 21F-9(a) procedures.
  • The interpretation best comports with the overall goal in implementing the whistleblower program. Specifically, by providing employment retaliation protections for individuals who report internally first to a supervisor, compliance official, or other person working for the company that has authority to investigate, discover, or terminate misconduct, the interpretation avoids a two-tiered structure of employment retaliation protection that might discourage some individuals from first reporting internally in appropriate circumstances and, thus, jeopardize the investor-protection and law-enforcement benefits that can result from internal reporting.


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