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From Securities Regulation Daily, October 17, 2013

Dodd-Frank protected employee who blew whistle after termination

By Anne Sherry, J.D.

A court held that a terminated employee’s complaint adequately pleaded a retaliation claim under Dodd-Frank, notwithstanding that he did not bring information to the SEC until after he was terminated. The plaintiff alleged that he was terminated for bringing allegations of misconduct to the compliance officer for his investment adviser employer (Ellington v. Giacoumakis, October 16, 2013, Stearns, R.).

Report and retaliation. The plaintiff, Richard Ellington, worked for New England Investment & Retirement Group (NEINV), an investment adviser, from 2005 until 2010. During his employment, he raised concerns with NEINV’s principal, Nicholas Giacoumakis, that NEINV was distributing misleading investment reports to existing and prospective clients. He also submitted a report detailing the alleged infractions to NEINV’s compliance officer, which began an investigation. Approximately two weeks later, Giacoumakis fired Ellington. Following his termination, Ellington approached the SEC and volunteered to assist in an investigation of NEINV. The SEC eventually assessed approximately $200,000 in civil penalties for the adviser’s willful violations of the securities laws, and Ellington sued NEINV and Giacoumakis.

Timing of SEC cooperation. Ellington alleged that the defendants violated the whistleblower provisions of Dodd-Frank; the defendants countered that he did not fit the statutory definition of a whistleblower because he did not provide information to the SEC until after he was terminated. The court disagreed with this strict reading of the statute, finding it more persuasive that “Congress intended that an employee terminated for reporting Sarbanes-Oxley violations to a supervisor or an outside compliance officer, and ultimately to the SEC, have a private right of action under Dodd-Frank whether or not the employer wins the race to the SEC’s door with a termination notice.” The court also joined other district courts in noting that Dodd-Frank’s definition of “whistleblower” does not limit the reach of another of its sections protecting whistleblower disclosures that do not involve reporting to the SEC.

Timing of Dodd-Frank enactment. The defendants also lost their challenge to the case on the grounds that Dodd-Frank was not in effect at the time of the conduct for which Ellington sought protection. Ellington submitted his report to the compliance officer on July 20, 2010, one day before Dodd-Frank was signed into law and two days before its whistleblower provisions became effective. But the court noted that NEINV fired Ellington on August 3, 2010, and that there was no dispute that his assistance to the SEC occurred after Dodd-Frank took effect.

The case is No. 13-11791-RGS.

Attorneys: Marsha V. Kazarosian (Kazarosian Law Offices) for Richard Ellington. Michael L. Rosen (Foley Hoag LLP) for Nicholas John Giacoumakis and New England Investment and Retirement Group, Incorporated.

Companies: New England Investment and Retirement Group, Incorporated

MainStory: TopStory DoddFrankAct InvestmentAdvisers SarbanesOxleyAct MassachusettsNews

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