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Judge issues first ruling expanding whistleblower protections under Dodd-Frank

Stefan R. Underhill

A U.S. district judge’s ruling in the Kramer v. Trans-Lux case on Tuesday may expand whistleblower protections under the 2010 Dodd-Frank Act.

Kramer filed a whistleblower suit against Trans-Lux Corporation following his termination after the company’s board of directors and the Securities and Exchange Commission were notified that his supervisors were violating pension plan rules, costing taxpayers millions of dollars.

Judge Stefan R. Underhill ruled earlier this week that part of Kramer’s claim would be allowed despite protests by the defense counsel.

After Kramer notified the U.S. government of the company’s activities, he was reportedly stripped of his duties, and his supervisors terminated his employment and reassigned subordinates to his position in retaliation.

Trans-Lux argued in its motion to dismiss that Kramer did not follow the SEC’s whistleblower protocol in reporting the firm’s activities and, therefore, he does not qualify as a “whistleblower.” Kramer argued that, regardless of the manner of disclosure, individuals who make disclosures under the Sarbanes-Oxley Act or the Securities Exchange Act of 1934 meet the definition of a “whistleblower.”

Underhill sided with Kramer, citing a final rule published by the SEC in August 2011.

“Trans-Lux’s interpretation would dramatically narrow the available protections available to potential whistleblowers,” Underhill said. “In order to have provided information in the manner provided by the SEC, an individual would have either had to submit the information online, through the [SEC] website, or by mailing or faxing a Form TCR [Tip, Complaint or Referral]. Mailing a regular letter is insufficient…Such a reading seems inconsistent with the goal of the Dodd-Frank Act, which was to ‘improve the accountability and transparency of the financial system’ and create ‘new incentives and protections for whistleblowers.’”

Underhill also ruled that Kramer’s disclosure was required under Sarbanes-Oxley, and, as the disclosure relates to securities laws violations, the information provided to authorities is protected under Dodd-Frank regardless of the manner of disclosure. The court said that Dodd-Frank expands the protections of Sarbanes-Oxley.

“This ruling recognizes the expanded protections Dodd-Frank affords whistleblowers, and the fact that it is the first and only Dodd-Frank retaliation case to get beyond the motion to dismiss stage in federal court says volumes about the claims of those who opposed passing the Dodd-Frank Act that it would unleash a torrent of litigation,” Nicholas Woodfield, principal at The Employment Law Group, said.

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