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New Fifth Circuit Ruling Limits Internal SEC Whistleblower Protections

This blog post was contributed by D.C. whistleblower attorney Tony Munter.

The SEC whistleblower law is new and the attacks on it will grow.

Still a baby in legal terms, the SEC whistleblower program was born out of the Dodd-Frank financial reforms. The recent Fifth Circuit Court of Appeals decision in Asadi v. GE Energy provides a cautionary tale of why lawyers and whistleblowers have to be careful, and even when they are careful, they can still lose in court.

Kahled Asadi blew the whistle internally. GE Energy fired him. There does not seem to be any dispute about that.  Mr. Asadi had been the company’s Iraq Country representative. So although he was treated as an at-will employee, his stature was rather advanced.  The new Fifth Circuit ruling limits the protections available to somebody under the SEC whistleblower program.  Judge Jennifer Walker Elrod delivered the opinion of the Court.

The history of the litigation was pretty simply summed up as follows:

In 2006, Asadi accepted GE Energy’s offer to serve as its Iraq Country

Executive and relocated to Amman, Jordan. At a meeting in 2010, while serving in this capacity, Iraqi officials informed Asadi of their concern that GE Energy hired a woman closely associated with a senior Iraqi official to curry favor with that official in negotiating a lucrative joint venture agreement. Asadi, concerned this alleged conduct violated the Foreign Corrupt Practices Act (“FCPA”), reported the issue to his supervisor and to the GE Energy ombudsperson for the region. Shortly following these internal reports, Asadi received a “surprisingly negative” performance review. GE Energy pressured him to step down from his role as Iraq Country Executive and accept a reduced role in the region with minimal responsibility. Asadi did not comply and, approximately one year after he made the internal reports, GE Energy fired him. Asadi filed a complaint alleging that GE Energy violated Dodd-Frank’s whistleblower-protection provision by terminating him following his internal reports of the possible FCPA violations.

http://www.ca5.uscourts.gov/opinions%5Cpub%5C12/12-20522-CV0.wpd.pdf

The 5th Circuit Court determined that Asadi had to qualify as a whistleblower under the Dodd-Frank Law before he could earn a private right of action to sue for retaliation no matter what retaliatory action GE Energy took. In effect the Court said that to earn any protection under this particular law Asadi had to have filed an action with the SEC.  Here is a sample of the 5th Circuit’s Reasoning:

Under Dodd-Frank’s plain language and structure, there is only one category of whistleblowers: individuals who provide information relating to securities law violation to the SEC. The three categories listed in subparagraph§ 78u-6(h)(1)(A) represent the protected activity in a whistleblower-protection claim. They do not, however, define which individuals qualify as whistleblowers.

This is, as far as we know, the first decision from an appellate court with regard to the SEC whistleblower protections.  If this kind of logic is applied to other whistleblower protection laws, it runs the risk of defining who is a whistleblower so narrowly that rightful protections under the law get removed.  The Court does however point to a way to obtain the protections under the SEC whistleblower law and follow the reasoning of the 5th circuit in this case: file something with the SEC as a whistleblower.

The Court was careful, as courts usually are when restricting rights, to note that the only issue on this appeal was whether somebody who could not be defined as a whistleblower under this particular law was entitled to the protections it affords.  There may have been other laws Mr. Asadi could have used (or, for all we know, is using) to confront GE Energy.  This is also a cautionary tale here for the argument we often hear from people that whistleblowers should first work internally. I doubt Mr. Asadi would endorse that view at this point.

The Court also offered a rebuke to the SEC itself. It noted that the definition of “whistleblower” under the Dodd-Frank Law was not as expansive as the Final Rule the SEC itself adopted. This is going to make it difficult on practitioners in the 5th circuit who might understandably want to rely on the definition the Commission itself propagated. The SEC may have to do something about that as well.

The bottom line is that whistleblowers and whistleblower protections are hard to maintain, worth fighting for and never guaranteed. I do not doubt that there will be future cases in the 5th Circuit and elsewhere in which some will attempt to further decrease the protections for whistleblowers we hold dear.

At least the Court in this instance seems to have affirmed the idea that once an individual does file with the SEC, that person would qualify as a whistleblower and would be protected from retaliation, even if the CEO of the company involved did not know about the SEC filing.  We hope that part of the Court’s reasoning holds.