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From Securities Regulation Daily, October 28, 2013

Whistleblower protection does not require reporting to SEC

By Rodney F. Tonkovic, J.D.

An employee bringing a claim for retaliation was not required to report to the SEC to obtain whistleblower protection. Mark Rosenblum brought suit under Exchange Act Section 21F against his former employer, Thomson Reuters, alleging that he had been fired for reporting an alleged fraud. The district court found that Rosenblum stated a claim for retaliation but denied his claim for damages (Rosenblum v. Thomson Reuters (Markets) LLC, October 25, 2013, Scheindlin, S.).

Background. Rosenblum’s work at Thomson involved assisting the sales team in closing redistribution contracts. In January 2012, Rosenblum learned of a new product, the “Thomson

University of Michigan Survey of Consumers,” which reports on consumer attitudes about the U.S. economy and its future. Under its contract with the University of Michigan, Thomson was to release the survey information in three tiers based on subscriptions: to “ultra low-latency” subscribers 2 seconds before 9:55 a.m., to “desktop” subscribers at 9:55 a.m., and to the public at 10:00 a.m.

The violation. Rosenblum learned that certain Thomson customers were receiving access to the survey data nearly an hour before the earliest time in the contract. Rosenblum claimed that these subscribers were thus given an advantage when making transactions based on that information. Rosenblum eventually came to believe that the tiered release of information constituted insider trading.

In May and June 2012, Rosenblum told his superiors about his concerns and was told to “stop trying to figure out what Thomson [was] doing” and to stop “chasing down who is getting the numbers ahead of time.” In late June, Rosenblum reported the early release of survey data to the FBI and sent an email to Thomson’s Ethics Committee; he also informed Thomson that he had alerted the FBI. Rosenblum told the FBI and his supervisors at Thomson that he believed that the early disclosure of the survey data violated Exchange Act Section 10b-5 and Regulation NMS.

Retaliation. Rosenblum was terminated on August 3, 2012. Thomson maintained that he was fired for improperly trying to gain commissions to which he was not entitled. Rosenblum countered that this was a mere pretext and that the commission issues had been dismissed after Rosenblum himself brought them to the attention of his supervisors. Rosenblum argued that he was a whistleblower and that his reports to the FBI were a protected under the Dodd-Frank Act.

Reporting to SEC. At issue was whether disclosure to the SEC is required in order to qualify for protection under Dodd-Frank’s anti-retaliation protection. The parties disagreed over the interplay between the Dodd-Frank whistleblower provision, which requires reporting to the Commission, and the Act's anti-retaliation provision, which does not. Thomson asserted that Rosenblum was not covered because he never reported the alleged misconduct to the SEC, as required under Exchange Act Section 21F(h). Because neither the Supreme Court nor the Second Circuit has addressed this issue, Thomson urged the court to follow the Fifth Circuit's decision in Asadi v. G.E. Energy (USA), LLC. (Thomson's motion to dismiss is discussed in detail in the August 26, 2013, edition of Securities Regulation Daily.)

In Asadi (reported in the July 18, 2013, edition of Securities Regulation Daily), the Fifth Circuit held that an employee terminated after reporting a violation internally was not a whistleblower under Dodd-Frank because he did not report to the SEC. The Fifth Circuit declined to defer to SEC Rule 21F-2, which does not require a report to the SEC to obtain whistleblower protection, explaining that Congress unambiguously intended to limit the provision’s protection to those reporting violations to the Commission. In its opinion, the court noted that every district court that has grappled with this issue extended whistleblower status to persons who did not report to the SEC. Asadi’s holding has since been adopted by the District of Colorado (see Wagner v. Bank of America Corporation, reported in the July 22, 2013, edition of Securities Regulation Daily).

Here, the court concluded that the interplay between the Dodd-Frank whistleblower and anti-retaliation provisions was ambiguous. The court therefore appliedChevron deference to the SEC’s interpretation of the statute as set forth in Rule 21F-2. The Southern District has previously reached the same conclusion, most recently in Ellington v. Giacoumakis (reported in the October 17, 2013, edition of Securities Regulation Daily).

Damages. Rosenblum also claimed that he was entitled to damages under the anti-retaliation provision for the loss of his career, salary, and other employment-related benefits, as well as a number of non-pecuniary losses. The court dismissed the claim for damages, deciding that Dodd-Frank does not provide for either punitive damages or any broader form of relief.

The case is No. 13 Civ. 2219.

Attorneys: Eric Leighton Young (Young Law Group, P.C.) for Mark Rosenblum. Glenn Charles Edwards (Satterlee Stephens Burke & Burke LLP) for Thomson Reuters Markets LLC.

Companies: Thomson Reuters Markets LLC

MainStory: TopStory DoddFrankAct NewYorkNews SarbanesOxleyAct

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