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Wis.: Whistle-blowing Banker Denied Dodd-Frank Protections

By Rita Zeidner  7/28/2014
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A bank executive who claims he was fired for disclosing his organization’s illegal practices to banking regulators cannot state a claim under the whistleblower protection provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act, a Wisconsin federal court ruled. While courts disagree on whether whistle-blowers must disclose violations to the Securities and Exchange Commission to qualify for protections, no one disputes that the violation must be securities-related. Thus the law provided no coverage for blowing the whistle on a bank, the court concluded in a June 4, 2014, decision.

Nicholas Zillges alleged that during his tenure as president and chief executive officer at Kenney Bank and Trust he observed conduct that violated federal banking laws. He reported the conduct to the Bank's board of directors, the Federal Deposit Insurance Corporation and the Federal Trade Commission and also took steps to prevent and correct the regulatory violations, he claimed.

In retaliation for his actions, Zillges alleged that Kenney bank officials terminated his employment.

As described the June 4, ruling, Dodd-Frank made various amendments to the Securities and Exchange Act of 1934 in various ways. It created a “bounty” program under which whistleblowers may receive financial awards from the SEC for providing information relating to violations of the securities laws. It also created a private cause of action to protect certain whistleblowers from retaliation by their employers. This “whistleblower protection” provision provides that no employer may discriminate against a whistleblower for engaging in certain specified activities.

After filing an initial complaint against the bank in November 2013, Zillges sought leave to file an amendment that added claims under the Dodd-Frank whistleblower anti-retaliation provision. Defendants opposed the motion, arguing that such an amendment was futile because Dodd-Frank did not cover complaints about alleged violations of banking laws or regulations.

Adelman agreed. “I need not take sides on the question of whether a person who does not make a protected disclosure to the SEC is a whistleblower,” she wrote. “This is so because Zillges fails to meet one of the other requirements for qualifying as a whistleblower under Dodd-Frank —namely, that the disclosure “relat[e] to a violation of the securities laws.”

Adelman noted that the only court that has addressed this issue has concluded that, to be protected as a whistleblower under Dodd-Frank, the plaintiff “must demonstrate that the disclosure at issue relates to a violation of federal securities laws.”

Zillges, she added, “has not alleged or shown that his disclosure relates to a violation of federal securities laws, and so he has not stated a claim under Dodd-Frank’s whistleblower-protection provision regardless of whether that provision protects individuals who make disclosures to entities other than the SEC.”

Zillges v. Kenney Bank & Trust, E.D. Wisc., No. 13-cv-01287 (June 4, 2014).

Rita Zeidner is a freelance business writer and former senior writer for HR Magazine.  

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