The Sarbanes-Oxley Act (SOX) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) contain provisions protecting from retaliation individuals who provide information regarding a violation of U.S. securities laws. Various ambiguities in these statutory provisions have been adjudicated, most recently by the Northern District of California, which grappled with a new issue: whether directors who allegedly engage in retaliatory conduct may be liable under Sarbanes-Oxley and Dodd-Frank.

In Wadler v. Bio-Rad Laboratories,1 Chief Magistrate Judge Joseph C. Spero held that directors who take retaliatory action against a whistleblowing employee by voting in favor of that employee's termination are subject to individual liability under both SOX and Dodd-Frank. In addition, the court addressed the unsettled question whether Dodd-Frank's anti-retaliation protection extends to whistleblowers who report internally but not to the Securities and Exchange Commission (SEC), joining a divided Second Circuit in according deference to the SEC's view that it does.

Statutory Background

Section 1514A of SOX protects employees of covered companies from discharge and other retaliatory action for reporting or assisting in the investigation of a violation of federal securities laws.2 Passed in 2010, Dodd-Frank enhanced and expanded pre-existing protections and bounty incentives to encourage whistleblowing, including SOX's. Dodd-Frank added Section 21F to the Securities Exchange Act, which defines a “whistleblower” as “any individual who provides…information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.”3