The Question of Whether Internal Reporting Triggers Whistleblower Protection Under Dodd-Frank Remains Unsettled

The 5th Circuit’s 2013 decision in Asadi v. GE Energy (USA) LLC, which limited Dodd-Frank’s whistleblower protections to those who reported to the SEC in advance of the alleged retaliation, has sharply divided the district courts, setting up the issue for a circuit split and likely eventual Supreme Court review.

In Asadi, the 5th Circuit ruled that a former GE executive, who claimed he was fired for reporting a possible securities law violation, did not qualify as a whistleblower under Dodd-Frank because he reported internally rather than to the SEC.  The court found the plain language of Dodd-Frank extends whistleblower protection only to those individuals who report securities violations “to the Commission,” and refused to give deference to a recent SEC regulation stating that internal reporting satisfies Dodd-Frank. This ruling makes Dodd-Frank stand in contrast to the Sarbanes-Oxley Act, 18 U.S.C. § 1514A, which extends whistleblower protection to individuals who claim retaliation after reporting violations internally.

Before Asadi, most district courts had found ambiguity in Dodd-Frank and relied on the SEC’s interpretation in extending protection to internal reporting (like the Sarbanes-Oxley Act does). But Asadi changed the legal landscape. District courts outside the 5th Circuit are now split, with some courts following Asadi and the plain statutory language and others finding statutory ambiguity and relying on the SEC’s expansive interpretation.

Until other circuit courts address the issue, or it is resolved by the Supreme Court, there will continue to be uncertainty about whether an employee who claims to have been fired for reporting securities violations internally can claim whistleblower protection under Dodd-Frank.