Wall Street whistleblowers just got another reason to take their gripes directly to the SEC.
Employees who report corporate wrongdoing are offered financial incentives and protection from retaliation under the Dodd-Frank law, but the law left a lingering question of which whistleblowers are protected. In a series of recent rulings, U.S. judges have narrowed the definition of what merits a shield under the law ― saying that to qualify, any flags must be raised to the SEC.
In the latest example, a federal judge in New Jersey ruled last week that an employee who took his complaints to FINRA wasn’t entitled to the protections even though the financial industry’s self-regulator is overseen by the SEC. Craig Price, a former UBS financial adviser, had claimed he’d been fired after testifying, in a formal deposition conducted by FINRA, that a colleague had evaded compliance safeguards and tapped a wealthy client’s account to cover his own expenses.
Numerous federal laws prohibit companies from retaliating against workers who report violations involving employment, health and safety issues. Dodd-Frank was drafted after the financial crisis to encourage employees to disclose fraud and securities-law misdeeds.
According to several court challenges, the wording in the 2010 law left unclear whether the shield would apply only to people taking concerns to the SEC or more broadly to employees who report apparent misdeeds internally, via corporate hot-lines or other means. As that question wound its way to the Supreme Court, an amicus brief filed by Justice Department and SEC lawyers argued that employees shouldn’t have to go directly to the commission to qualify to receive protection against retaliation.
But the Supreme Court saw it otherwise. In February, it clarified that under Dodd-Frank, a whistle-blower is someone who takes the complaint to the SEC. Employees reporting internally aren’t covered by the anti-retaliation measures, the court said in the case, Digital Realty Trust, Inc. v. Paul Somers.
The ruling left unanswered whether people who bring claims to FINRA are protected. Price argued that because the SEC oversees FINRA rulemaking, disciplinary proceedings and other matters, reports to the self-regulator should be protected under Dodd-Frank.
Dismissing the claim, Judge William Martini in New Jersey said Price’s “testimony to FINRA plainly does not meet the statutory requirement and he, therefore, is not a whistleblower under Dodd-Frank."
Price, who worked for UBS in Stuart, Florida, said he intends to pursue a similar claim against UBS under a state whistleblower statue.
“In my years in the business, nobody has ever mentioned in training or compliance manuals ‘Go to an external place with problems,’" Price said in an interview. “It’s always ‘Go to a line manager or the compliance department.”’
“We are pleased with the court’s decision to dismiss Price’s Dodd-Frank whistle-blower retaliation claim in this case,” UBS spokesman Peter Stack said in a written statement. “We will continue to vigorously defend against the remaining claim as we believe that it too lacks merit."
FINRA didn’t respond to requests for comment.
