Monday, April 23, 2018

FINRA testimony insufficient for ‘whistleblower’ status under Dodd-Frank

By R. Jason Howard, J.D.

The United States District Court for the District of New Jersey has determined that a former UBS employee's testimony before FINRA did not equate to providing information to the SEC as required by the Dodd-Frank Act’s definition of “whistleblower” (Price v. UBS Financial Services, Inc., April 19, 2018, Martini, W.).

Claims. The plaintiff brought claims of whistleblower retaliation under Dodd-Frank and the Florida Whistleblower Act (FWA). The court had previously decided to deny dismissal of the FWA and stayed proceedings on the Dodd-Frank claim pending a decision by the Supreme Court in Digital Realty Trust, Inc. v. Somers, which was decided on February 21, 2018.

In Digital Realty, the Supreme Court held that “the anti-retaliation provision of Dodd–Frank does not extend to an individual who has not reported a violation of the securities laws to the SEC and therefore falls outside of the Dodd–Frank definition of ‘whistleblower.’”

With Digital Realty decided, UBS sought to lift the stay and dismiss the Dodd-Frank claim, arguing that “testifying before FINRA does not equate to providing information to the SEC as required by the Dodd-Frank definition of ‘whistleblower.’”

The plaintiff opposed the dismissal of the claim, arguing that he should be considered a whistleblower under Dodd-Frank because the SEC oversees FINRA, which acts under the authority of the SEC. The plaintiff had had testified before FINRA about alleged misconduct by a UBS colleague.

In reply, UBS responded that “FINRA is not the SEC, a division of the SEC, or a component of the government at all.” UBS also argued that the holding in Digital Realty expressly rejects the contention by the plaintiff that he can claim whistleblower protection because he engaged in other activity protected by a subsection of Dodd-Frank.

Discussion. In deciding the matter, the court turned directly to the holding in Digital Realty, explaining that the Supreme Court was unequivocal in its holding that in order to sue under Dodd-Frank’s anti-retaliation provision, a person must first provide information of a violation of the securities laws to the SEC. The Supreme Court further noted that the “core objective” of Dodd-Frank’s whistleblower program is to “motivate people who know of securities law violations to tell the SEC.”

The district court explained that, just as in Digital Realty, the plaintiff did not provide information on violations to the SEC before his termination and, as such, he did not qualify as a whistleblower at the time of the alleged retaliation. The plaintiff’s testimony to FINRA, according to the court, did not meet the statutory requirement and therefore, he is not a whistleblower under Dodd-Frank. The court also noted that the plaintiff “had ample time between when he first learned of the violations and his termination to report the misconduct to the SEC, but he chose not to.”

Conclusion. The court found that the plaintiff did not meet the definition of “whistleblower” under Dodd-Frank and dismissed the plaintiff’s Dodd-Frank claim with prejudice.

The case is No. 2:17-01882.