Monday, December 15, 2014

SEC Asks for Chevron Deference to Whistleblower Rule

[This story previously appeared in Securities Regulation Daily.]

By Anne Sherry, J.D.

The SEC has filed another brief asking an appeals court to defer to its rulemaking extending Dodd-Frank’s whistleblower protections to employees who report misconduct internally. The agency argues that the anti-retaliation provision is ambiguous as to whether it covers someone who did not report misconduct to the SEC (Safarian v. American DG Energy Inc., December 11, 2014).

Current landscape. The brief is substantially identical to the amicus brief that the SEC filed in the Liu v. Siemens appeal before the Second Circuit earlier this year. That court did not reach the issue of whether an employee who reports misconduct only internally is protected, instead affirming the dismissal of the whistleblower’s lawsuit on the basis that the Dodd-Frank provision does not apply extraterritorially.

The only appeals court to have ruled on the issue is the Fifth Circuit, which, in Asadi v. G.E. Energy (USA), L.L.C., construed the statute, which defines “whistleblower” as “any individual who provides … information relating to a violation of the securities laws to the Commission,” as unambiguously protecting only those who bring reports of misconduct to the SEC. District courts are split, with some taking the view that other parts of the statute render it ambiguous overall. The Southern District of New York last week adopted the Fifth Circuit’s view.

Chevron deference. The SEC argues that the statute is ambiguous in part because, although the defined term “whistleblower” means an individual who reports wrongdoing to the SEC, one of the protected categories of reporting seems to include internal reporting. Under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. (U.S. 1984), the SEC urges, because of this ambiguity, the court should defer to the SEC’s rule as long as it is a reasonable interpretation of the statute. The rule intentionally omits to require that a whistleblower have reported misconduct to the SEC.

Defending its rulemaking in its amicus brief, the agency stresses the importance of internal company reporting in deterring, detecting, and stopping unlawful conduct that may harm investors. It argues that its rulemaking implementing Dodd-Frank’s monetary award provisions was carefully calibrated not to disincentivize employees from reporting internally, and the agency likewise clarified the statute’s anti-retaliation prohibition to protect an employee who engages in whistleblowing whether or not the employee separately reports to the Commission.

The case is No. 14-2734.

No comments: