Securities Litigation

The Sixth Circuit this week rejected the "definitively and specifically" standard that had required a Sarbanes-Oxley whistleblower's "reasonable belief" to closely track each element of the legal cause of action for the fraud she reports has occurred. The Circuit instead aligned with more recent authority requiring only a subjective belief that is objectively reasonable, given the whistleblower's training and experience. Sarbanes-Oxley makes it illegal for a public company to retaliate against an employee who reports fraud or assists in investigations or enforcement actions. 18 U.S.C. s 1514A. Before Dodd-Frank created a private civil action in 2010, whistleblower claims were decided by the Department of Labor's Administrative Review Board ("ARB"). ARB introduced the "definitively and specifically" standard in Platone (2006) as a basis for rejecting insubstantial claims. Platone subsequently was followed by the First, Second, Fourth, Fifth and Ninth Circuits, deferring to the ARB. But in 2011, the ARB abandoned Platone for a simpler standard in Sylvester: A reasonable basis given the whistleblower's training, without requiring her to "prove up" a private claim for the reported conduct. Recent decisions by the Second and Third Circuits have deferred to the ARB's newer Sylvester standard. Under Rhinehimer then, a whistleblower engages in protected activity if she believes (subjectively and reasonably given her training and experience) that the reported conduct violates one of the enumerated laws; her belief need not articulate each element of the specified offense. Rhinehimer v. US Bancorp Investments, Inc., No. 13-6641 (6th Cir. May 28, 2015). Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Resident in the Nashville office, Tom is licensed in Tennessee, Texas and Louisiana. He has over 29 years' experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile. © 2015 by Thomas K. Potter, III (all rights reserved).