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Recent Ruling Reaffirms Dodd Frank Internal Protection for Whistleblowers

A recent ruling by a New York federal court marks a key victory for the SEC as it looks to encourage whistleblowers to come forward and report Wall Street fraud and receive internal protection.

U.S. District Judge Jesse M. Furman ruled that the  Dodd-Frank Act protects whistleblowers from retaliation even if they report wrongdoing internally rather than to the SEC. The decision keeps intact a suit by a former UBS mortgage-backed securities strategist, Trevor Murray, who claims he was fired after complaining that bank officials were pressuring him to skew his research to support the firm's trading and loan origination activities.

Whistleblower Reported Wrongdoing to His Superiors Internally, Not the SEC

Murray was responsible for conducting research and compiling reports on UBS' commercial mortgage-backed securities products that were distributed to current and potential clients. Murray believed that he was being pressured by his supervisors to produce purportedly objective research reports about security products that were false or misleading and intended to favor UBS's products and trading positions, in violation of federal laws. In particular, he was told to report better conditions in the CMBS market because it was a significant revenue generator for UBS's securities arm, according to the suit.

Murray told the bank's head CMBS trader that he was concerned certain CMBS bonds were overvalued, but was told not to publish anything negative about the bonds because they had been purchased by the UBS trading desk, the suit alleged. Murray was later fired despite having earned a "spotless review" of his work, according to the suit.

Dodd-Frank Act Prohibits Retaliation Even Where Whistleblower Reports Internally

The Securities Whistleblower Incentives and Protection provision of the Dodd-Frank Act. section 78u-6(h)(1)(A), provides that:

[n]o employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower

(i) in providing information to the Commission in accordance with this section;

(ii) in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information; or

(iii) in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.), the Securities Exchange Act of 1934 (15 U.S.C. 78aet seq.), including section 10A(m) of such Act (15 U.S.C. 78f(m)), section 1513(e) of Title 18, and any other law, rule, or regulation subject to the jurisdiction of the Commission.

15 U.S.C. § 78u-6(h)(1)(A); see id. § 78u-6(h)(1)(B)(i) (providing a private right of action for an individual "who alleges discharge or other discrimination in violation of subparagraph (A)").

In its motion to dismiss the suit, UBS argued that the  2010 Dodd-Frank Act defined a "whistleblower" as an individual who provided information about a potential securities law violation to the SEC. Murray did not fit that description, the bank said.

Sarbanes-Oxley Bans Retaliation Against Whistleblowers

But Judge Furman held that a separate Dodd-Frank provision, based on the 2002 Sarbanes-Oxley Act, banned retaliation against employees who blow the whistle about potential wrongdoing to superiors even if they do not also report to the SEC.  The Court ruled that subsection (iii) protects a person who makes "disclosures that are required or protected under the Sarbanes-Oxley Act" even if that person does not make those disclosures to the SEC.  An interpretation and final rule issued by the SEC supported the theory that a retaliation claim could be made by whistleblower even if they only reported the problems internally.  The Court held that SEC ruling was entitled to deference, stating, "In short, because the SEC's rule clarifies an ambiguous statutory scheme the SEC was charged with enforcing and reflects the considerable experience and expertise that the agency has acquired over time with respect to interpretation and enforcement of the securities laws, this court defers to the SEC's interpretation."

In addition, the Court noted that four other recent cases have taken the same broad view of the Act's anti-retaliation provisions.

The decision should aid efforts by regulators to root out fraud in potentially hostile work environments, and should encourage more whistleblowers to come forward.

The case is Murray v. UBS Securities LLC et al., case number 12-cv-05914, in the U.S. District Court for the Southern District of New York.

Contact Us To Learn More

If you have discovered evidence of government fraud, contact an experienced False Claims Act attorney before blowing the whistle. You may be entitled to a substantial reward and the legal protections afforded to whistleblowers under state and federal laws. The attorneys of Berger & Montague are nationally recognized experts in Whistleblower/Qui Tam actions with over a decade of experience pursuing these complex fraud cases. For more information or to schedule your confidential consultation, use the form on this page or call us at 1-800-424-6690.

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For further reading:
SEC Whistleblower Program Review of Year One
SEC Prepare for Whistleblower Payouts under Dodd-Frank Act
SEC Whistleblower Statute: Section 922 of the Dodd-Frank Act
Immunity and Protection For Qui Tam Whistleblowers

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