United States: Whistleblower Claims Under SOX And Dodd-Frank: Recent Developments

Section 806 of the Sarbanes-Oxley Act ("SOX") and Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") both extend whistleblower protection to certain individuals who report conduct they reasonably believe constitutes federal mail, wire or bank fraud or a violation of any rule or regulation of the Securities and Exchange Commission ("SEC") or any provision of federal law relating to shareholder fraud. Dodd-Frank also required the SEC to implement a new whistleblower program — the so-called bounty program — that pays awards to whistleblowers who provide the SEC with information about violations of securities laws that leads to a successful enforcement action resulting in monetary sanctions in excess of $1 million.

As described in more detail below, the U.S. Department of Labor ("DOL") has issued final regulations governing the procedures for handling SOX whistleblower claims. The SEC has announced its view that, for purposes of the employment retaliation provision in Dodd-Frank, an employee's status as whistleblower does not depend on whether that individual reported wrongful conduct to the SEC. The Second Circuit Court of Appeals followed suit in a recent decision, creating a circuit split on this issue, which now may be resolved by the United States Supreme Court. Moreover, a number of notable recent federal court decisions, including those issued by two circuit courts, have addressed the standards for establishing "protected activity" under SOX.

The DOL Issues Final Rule on SOX Whistleblower Complaints

Earlier this year, the DOL's Occupational Safety and Health Administration ("OSHA") issued final regulations governing procedures applicable to whistleblower claims under SOX. It had been more than three years since OSHA had issued an "interim rule," which had during that period governed the agency's approach to SOX retaliation complaints.

The Final Rule does not substantially alter OSHA's approach to investigating retaliation claims under SOX. The key features of the regulations include:

  • An employee, or someone on the employee's behalf, may file a retaliation complaint, either orally or in writing, in any language, with OSHA within 180 days from the date of the alleged retaliation or the date on which the employee becomes aware of the violation.
  • A complainant must make a prima facie case showing that he or she engaged in protected activity and that activity was a "contributing factor" in the adverse action by the employer. Once the employee makes that showing, the burden shifts to the employer to prove by clear and convincing evidence "that it would have taken the same adverse action in the absence of the protected activity."
  • At the conclusion of the investigation, if OSHA determines that there is reasonable cause to believe that the statute was violated, it will issue a preliminary order for relief, including immediate preliminary reinstatement. Employers may request a hearing before an administrative law judge and may apply for a stay of the preliminary order of reinstatement.
  • Whistleblowers may be provided "economic reinstatement" — payment of wages in lieu of employment — if OSHA determines that it is not advisable for the employee to return to work. Perhaps surprisingly, if the employer ultimately prevails in the whistleblower action, OSHA will not order reimbursement to the employer of wages paid to the former employees during the economic reinstatement period.

SEC Announces That Internal Whistleblowers Have Full Protections Under Dodd-Frank

The SEC declared on August 4, 2014, that for purposes of the employment retaliation protections provided by Dodd-Frank, an individual's status as a whistleblower does not depend on whether or not he or she reported wrongdoing to the SEC. Among other reasons, the SEC stated that its conclusion "best comports with our overall goals in implementing the whistleblower program." By providing protection for internal whistleblowers, said the SEC, its interpretation avoids a structure that might discourage some individuals from first reporting internally in appropriate circumstances and thus jeopardize the investor-protection and law-enforcement benefits that can result from internal reporting.

Second Circuit Decision Holds That Internal Whistleblowers Are Entitled to Protection Under Dodd-Frank, Creates Circuit Split

On September 10, 2015, the U.S. Court of Appeals for the Second Circuit ruled that the anti-retaliation provisions of Dodd-Frank apply to whistleblowers who report wrongdoing "internally" — to the employer — without the requirement of also reporting to the SEC. Berman v. Neo@Ogilvy, 801 F.3d 145 (2d Cir. 2015). The court focused on an "arguable tension" within the statute: While the statute defines "whistleblower" to mean only those who report violations to the SEC, the substantive anti-retaliation provision applies to all whistleblowers who provide information as required or protected under SOX, which extends protection to internal whistleblowers even if they do not report alleged wrongdoing to the SEC. The court therefore found the language of the statute sufficiently ambiguous to warrant deference to the interpretation of the SEC, which (as noted above) has announced that Dodd-Frank's retaliation provision includes protection for individuals who provide information internally.

The only other circuit court decision to address the definition of "whistleblower" under Dodd-Frank is Asadi v. G.E. Energy (USA), L.L.C., 702 F.3d 620 (5th Cir. 2013), which found that the language of the Dodd-Frank whistleblower protection provision creates a private cause of action only for individuals who provide information to the SEC relating to a violation of the securities laws. Because the Second Circuit case conflicts with the Fifth Circuit's decision in Asadi, the Supreme Court may take up the question of whether individuals who report internally (without also reporting to the SEC) are entitled to protection under Dodd-Frank.

In the meantime, it is worth noting that Dodd-Frank is far broader than SOX in many respects relevant to employers. Dodd-Frank provides the enhanced remedy of double back pay and allows whistleblowers to bring their claims directly in federal court, while SOX provides a successful claimant with the remedies of back pay and reinstatement and requires that a complaint first be filed with the DOL. In addition, under Dodd-Frank, whistleblowers who engage in SOX-protected activity must file in court either within six years after the date when the violation occurs or within three years after the date "facts material to the right of action are known or reasonably should have been known by the employee," but not more than 10 years after the date of the violation. The limitations period under SOX is 180 days.

California District Court Limits Protected Activity Under Dodd-Frank

In Nazif v. Computer Sciences Corp., No. 13-cv-5498 (N.D. Cal. June 17, 2015), a suit brought by a CPA who was allegedly fired by Computer Sciences Corp. for complaining to his managers about various purported errors in the company's accounting practices, the Northern District of California granted the employer summary judgment, dismissing Nazif's claims. The court concluded there was no evidence that his purported belief that the company violated securities laws was objectively reasonable under SOX.

The court relied on Ninth Circuit precedent for the proposition that to have an objectively reasonable belief of a violation of one of the SOX-enumerated laws — in this case, securities fraud — the complaining employee's theory of such fraud "must at least approximate the basic elements of a claim of securities fraud." According to the court, this means that the plaintiff must have had an objectively reasonable belief that his employer's violations involved a material misrepresentation or omission, scienter (intent or knowledge of wrongdoing), a connection with the purchase or sale of a security, reliance, economic loss, and loss causation.

The court reviewed Nazif's evidence, including his purported belief that the aggregate effect of the various alleged accounting irregularities would have resulted in approximately $15 million in misstatements. It concluded that no objectively reasonable accountant could have believed that a revenue misstatement of this size was sufficiently material to a company as large as this one, which reported annual revenue of over $14 billion. "At best," held the court, "a jury could conclude that Nazif reported 'minor or technical' GAAP violations to his superiors." Because Nazif's complaint concerned a trivial matter in terms of its relationship to shareholder interests, held the court, he did not engage in protected activity under SOX.

Sixth Circuit Rejects 'Specifically and Definitively' Standard for SOX Whistleblower Protected Activity

In Sylvester v. Parexel Int'l LLC, DOL ARB No. 07-123 (May 25, 2011), the DOL's Arbitration Review Board ("ARB") held that complainants only have to express a "reasonable belief" of a violation of law to engage in SOX-protected activity — the protected activity does not have to describe an actual violation of the law. In doing so, the ARB rejected the "definitive and specific" evidentiary standard announced in the ARB's 2006 decision in Platone v. FLYI Inc., DOL ARB No. 04-154 (2006), which had held that protected conduct had to definitively and specifically describe a violation of one or more of the laws listed in SOX.

In 2012, the Sixth Circuit adopted the Platone standard in Riddle v. First Tennessee Bank, National Association, 497 F. App'x 588 (6th Cir. 2012) (unpublished). But in Rhinehimer v. U.S. Bancorp Investments, Inc., 787 F.3d 797 (6th Cir. 2015), the Sixth Circuit abandoned the Platone "definitive and specific" standard, ruling that an employee who reports allegedly fraudulent conduct engages in protected activity under SOX when he or she has a reasonable belief that the conduct reported is prohibited under SOX, even if that belief is mistaken.

Rhinehimer was a certified financial planner at U.S. Bancorp who was terminated after he complained to his supervisor about allegedly inappropriate trades. He claimed to believe that the trades compromised his elderly client's estate plan and constituted fraud. The jury issued a verdict in favor of Rhinehimer in the amount of $250,000. On appeal, the company argued that, based on Riddle, Rhinehimer was required to establish facts from which a reasonable person could infer each element of an unsuitability fraud claim, including the misrepresentation or omission of material facts and that the broker acted with intent or reckless disregard of the client's needs. According to the company, the evidence did not support a finding by the jury that Rhinehimer had engaged in protected activity.

The court made an about-face from its holding in Riddle, stating it agreed with the ARB's standard as set forth in Sylvester. It explained that under this standard, "an employee need not establish the reasonableness of his or her belief as to each element of the violation" and that "[i]nstead, the reasonableness of the employee's belief will depend on the totality of the circumstances known (or reasonably albeit mistakenly perceived) by the employee at the time of the complaint, analyzed in light of the employee's training and experience." Based on the totality of the circumstances, the court found that the evidence was sufficient to sustain the jury's finding and that Rhinehimer reasonably believed that the trades constituted unsuitability fraud.

Fifth Circuit Reverses Dismissal of SOX Whistleblower Claims

On July 31, 2015, in Wallace v. Tesoro Corp., 796 F.3d 468 (5th Cir. 2015), the Fifth Circuit revived a SOX whistleblower complaint that was dismissed by the United States District Court for the Western District of Texas, holding that the plaintiff's alleged belief that the company violated SEC rules, as pleaded in the complaint, could be found to be objectively reasonable. The Fifth Circuit also affirmed the dismissal of claims not included in the OSHA complaint on the grounds that they were not administratively exhausted.

The plaintiff, formerly the vice president of pricing and commercial analysis at Tesoro Corp., claimed that the company retaliated against him after he complained that the company allegedly counted taxes as revenues on certain financial forms, in violation of GAAP. After OSHA dismissed his complaint, the plaintiff filed a complaint in federal district court pursuant to SOX's "kick out" provision, which permits a complainant to withdraw an unresolved complaint from OSHA's administrative process after 180 days. Once in federal court, he filed several amended complaints, alleging the same categories of protected activity as in his OSHA complaint but also alleging — for the first time — that he engaged in protected activity when he investigated and reported suspected wire fraud. The District Court dismissed the complaint, finding that the plaintiff's purported belief that booking taxes as revenue violated SEC rules was not objectively reasonable and that his other allegations did not constitute protected activity. The court also dismissed the plaintiff's claim relating to wire fraud because it alleged activity outside the scope of the OSHA complaint.

The Fifth Circuit ruled that the District Court erred in dismissing Wallace's claim that he engaged in protected activity under SOX when he reported that the company booked taxes as revenue. The court concluded that Wallace's basis for his belief that the practice violated SEC rules, including the level and role of his accounting expertise and how that should weigh against him, are grounded in factual disputes that cannot be resolved on a motion to dismiss. However, the court affirmed the dismissal of Wallace's allegations that were not raised before OSHA, holding that the exhaustion requirement applicable to Title VII claims filed with the EEOC applies with equal force to SOX claims filed with OSHA. The court stated that "[b]y failing entirely to reference a distinct category of protected activity in his OSHA complaint, Wallace did not file a complaint whose investigation would reach that activity."


Recent decisions serve as a reminder that courts may well take a broad view of what constitutes protected activity under SOX and the Dodd-Frank Act. Employers should take great care to ensure that management and human resources professionals receive proper training to ensure that potential whistleblower complaints are promptly and thoroughly investigated and assessed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.