Court Rules for Whistleblower Who Made Internal Report of Alleged Financial Violations

Earth-illustration-blue.jpgA federal court ruled in favor of a woman who filed suit against her former employer under the whistleblower protection provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), finding that she had pleaded sufficient facts to allow the case to go forward. Bussing v. COR Clearing, LLC, 20 F.Supp.3d 719 (D. Neb. 2014). The decision is notable because the plaintiff only reported violations of federal money laundering statutes within the company, rather than reporting them to federal regulators. Federal courts have split on the question of whether Dodd-Frank protects whistleblowers who only report internally. The Fifth Circuit reached a contrary decision in Asadi v. G.E. Energy, 720 F.3d 620 (5th Cir. 2013). No New Jersey court has ruled on this issue, although Khazin v. TD Ameritrade Holding Corp., et al, No. 14-1689, slip op. (3rd Cir., Dec. 8, 2014), might be relevant.

Congress passed Dodd-Frank, and President Obama signed it into law in July 2010. The law is a broad response to the financial crisis of 2008, and it includes numerous changes to federal financial regulations. Section 922 of Dodd-Frank amends the Securities Exchange Act of 1934 to add new “incentives and protection” for whistleblowers who report violations of federal financial and securities laws. 15 U.S.C. § 78u-6. If a government agency is able to act on “original information” obtained from a whistleblower’s personal knowledge, which it could not have obtained from another source, the whistleblower could be entitled to 10 to 30 percent of the amount recovered. This section also protects individuals who meet this definition of a whistleblower from retaliation by their employer.

The plaintiff in Bussing was hired by COR Securities Holdings, Inc., an investment management company, to assist with due diligence during its acquisition of Legent Clearing, LLC, a clearing services company. The Financial Industry Regulatory Authority (FINRA), a private organization that regulates its member companies, had investigated and sanctioned Legent several times in the previous two years. The plaintiff learned of this during her investigation, and she developed a “Change of Control Plan” to address Legent’s “troubling regulatory history.” Bussing, 20 F.Supp.3d at 723. She was then recruited by her supervisor at COR to serve as Legent’s Executive Vice President.

At about the same time that the plaintiff became executive VP and began implementing her control plan, FINRA began another investigation of Legent. It brought formal charges in April 2012, claiming violations of the Bank Secrecy Act and money laundering statutes. While preparing a response to FINRA, the plaintiff reportedly identified “several potential or existing violations of FINRA rules and federal securities regulations,” id. at 724, which she believed FINRA would eventually discover. She reported her findings to COR and Legent, and she was allegedly instructed to “stall, delay, stop digging, and stop responding” to FINRA’s requests. She refused to do so, and in May 2012, she was terminated.

The plaintiff filed suit against COR and Legent under Dodd-Frank’s whistleblower protection provision. A magistrate judge found that she failed to state a valid Dodd-Frank claim. The district court, however, rejected this finding, ruling that the plaintiff stated a claim under the provision protecting someone who makes disclosures that are required by federal financial and securities laws, 15 U.S.C. § 78u-6(h)(1)(A)(iii). An interlocutory appeal of this ruling is now pending before the Eighth Circuit.

If you need to speak to an employment law attorney in New Jersey or New York regarding a retaliation claim or another whistleblower matter, contact the Resnick Law Group today at 973-781-1204 or 646-867-7997.

More Blog Posts:

Whistleblower Who Exposed Alleged Visa Fraud Files Lawsuit Claiming Retaliation by Employer, The New Jersey Employment Law Firm Blog, January 30, 2015
Federal Court Allows Police Whistleblower’s Lawsuit Against City Officials to Proceed, The New Jersey Employment Law Firm Blog, December 30, 2014
U.S. Supreme Court Rules in Former Public Employee’s Favor in Whistleblower Retaliation Case, The New Jersey Employment Law Firm Blog, September 30, 2014
Photo credit: By Pladuk (Own work) [Public domain], via Wikimedia Commons.

Contact Information