COR Clearing, LLC,
(D. Neb., 5/21/14).
(Whistleblower Protection Provision) * State Statutes
Interpreted (Nebraska Fair Employment Practices Act) *
Employment Discrimination (Retaliation) * SRO Rules (FINRA
Rule 8210) * FRCP (Rules 8 “Concise Statement,” 12(b)(6)
“Claim for Relief”) * Pleading Requirements/Issues *
Standard of Review (De Novo) * Statutory Definitions
(“Whistleblower”) * Common Law Interpreted.
Act’s anti-retaliation provision applies to employer
retaliation against employees for complying with FINRA Rule
proceedings against Legent
Clearing (now COR Clearing) for allegedly failing to comply
with requirements of the Bank Secrecy Act, as well as FINRA
and SEC anti-money laundering and financial reporting
responsibilities. While complying with a Rule 8210 Request
to provide extensive document and information,
Legent Executive Vice President
Bussing identified several potential existing violations and
brought these findings to the attention of her supervisors,
who directed her to stall, delay, stop digging and stop
responding to the 8210 Request. When she refused and
continued to cooperate with FINRA,
Legent terminated her, supposedly “for cause.”
Bussing filed this action, alleging retaliation in violation
of the whistleblower protection provision of the Dodd-Frank
Act and of the Nebraska Fair Employment Practices Act,
tortious interference with contract and a variety of other
state law claims. Defendants moved to dismiss. The
Magistrate Judge found, among other things, that Bussing
failed to state a claim under Dodd-Frank and that, although
she stated a claim for tortious interference against the
individual defendants, she failed to state a claim against
the corporate defendants. Bussing objected to both findings.
The Court finds that Bussing does state a claim for relief
under Dodd-Frank, which created a private cause of action
for certain individuals whose employers retaliate against
them for taking certain protected actions. Bussing argued
that her disclosures to FINRA were protected by subsection
(iii) of the anti-retaliation provision. The Court notes a
tension built into the statute: Dodd-Frank defines
whistleblower as “any individual who provides ...
information relating to a violation of the securities laws
to the Commission ...,” but
subsection (iii) of the anti-regulation provision does not
require that the whistleblower have interacted directly with
the SEC — only that the disclosure, to whomever made, was
“required or protected” by certain laws falling within the
SEC’s jurisdiction If, however, the anti-retaliation
provision is read using the word whistleblower in its
everyday sense, there is no such tension. When it is
apparent that Congress intends a word to be given its
ordinary meaning, notwithstanding the presence of a
statutory definition to the contrary, and when applying the
definition to the provision at issue would defeat the
provision’s purpose, the Court will not mechanically read
the statutory definition into the provision. Unless the term
“whistleblower” is given its ordinary meaning for purposes
of the anti-retaliation provision, subsection (iii) would be
rendered insignificant and its broad purpose would be
The Court grants that, ordinarily, a contracting party
cannot be held liable in tort for interfering with its own
contract and the agent of a principal cannot be held liable
for interfering with a contract between the principal and a
third party. Under Nebraska law, to constitute actionable
interference with an employment relationship, actions of the
agent must be shown to have been committed in furtherance of
some purpose other than the lawful purpose of the employer.
Here, Bussing has sufficiently plead a claim for relief
because the individual defendants’ alleged orders to stall,
delay, stop digging and stop responding to the FINRA request
do not fall within the lawful purposes of the employer.
(W. Nelson) (SLC Ref. No. 2014-24-05, 6/23/14)
ARBITRATION ITEM OF THE WEEK
The summary below appeared in a recent
Securities Arbitration Alert.
ANALYSIS: FINRA’S RULE PROPOSAL FOR COMPREHENSIVE CHANGES TO ARBITRATOR DEFINITIONS. We reported last week that FINRA had filed with the SEC SR-FINRA-2014-28 (see SAA 2014-23). As described on the website, “the amendments would, among other matters, provide that persons who worked in the financial industry for any duration during their careers would always be classified as non-public arbitrators, and persons who represent investors or the financial industry as a significant part of their business would also be classified as non-public, but could become public arbitrators after a cooling-off period. The amendments would reorganize the definitions to make it easier for arbitrator applicants and parties, among others, to determine the correct arbitrator classification." We promised a further analysis this week of the rule filing, which we present below. In short, the proposed rule gives all constituents – investors, the securities industry, the parties’ representatives, and arbitrators – aspects to like and aspects to dislike. We cover here the major changes.
If you ever worked in the Financial Industry, Once a Non-Public Arbitrator, Always a Non-Public Arbitrator
The first major change impacts arbitrators who worked in the financial industry for any amount of time. The new rule would essentially freeze an arbitrator’s non-public classification, if that individual ever worked “for any duration” in the financial industry (ed: this is a broadening of the term “securities business” now in the Codes). Under the current Codes, such individuals with a few exceptions can become public arbitrators after a five-year cooling off period. The proposed rule has no exceptions, stating: “Once FINRA classifies an arbitrator as non-public, FINRA would never reclassify the arbitrator as public. FINRA says this change is meant to address concerns expressed by investor reps that some public arbitrators are not truly public.
Give and Take for Professionals Serving the Industry
The second key change involves lawyers, accountants, and other professionals who provide services to the industry. Currently, these individuals are classified as non-public if they devoted 20 percent or more of their “professional work” to the securities industry in the last two years, but they can become public arbitrators after a two-year cooling off period after they stop providing these services, unless they provided services to the industry for 20 or more years during their careers. In that case, they are “permanently disqualified” from ever being a public arbitrator. The proposed new rule expands, contracts and clarifies the current rule. Expanded is: 1) the look-back period, which goes from two to five years; and 2) the application of the rule not only to the financial industry but also to “persons or entities associated” with it. Contracted is the 20-year permanent disqualification criteria, which is reduced to 15 years. The rule filing points out that the 15 years need not be consecutive. Clarified is the term “professional work,” which becomes “professional time” because it is easier for prospective arbitrators to calculate.
Big Change for Customers’ Attorneys
The current Codes permit investor reps to serve as public arbitrators if they are neither non-public, nor otherwise disqualified from being public arbitrators. This has long been a sore point for the securities industry. Indeed, in reacting to the original Optional All Public Arbitration Panel rule proposal, some industry members pointed out that it would be possible to have a panel consisting of three PIABA members. The Codes currently disqualify as public arbitrators individuals who themselves are not non-public, but whose firms derive 10 percent or more of their annual revenues in the past two years from serving the industry, or at least $50,000 providing services to the industry in connection with customer disputes. FINRA proposes to simplify matters by consolidating the rule, and then drops a blockbuster. To assuage industry concerns, the proposed rule expands its coverage to also disqualify as public arbitrators individuals whose firms meet the 10 percent/$50,000 threshold based on serving retail or institutional investors “relating to securities matters.” FINRA stresses that this is not a stylistic or non-substantive change, stating in the filing that the new rule “is not based on an existing disqualification – it is entirely new. The purpose of this provision is to address an industry perception that a professional whose firm derives significant revenue from representing investors in securities matters is not neutral, and should not be permitted to serve as a public arbitrator.”
Changes for Employment Attorneys
Again responding to industry concerns, the proposed rule would also disqualify as public arbitrators attorneys, accountants and other professionals who devote 20 percent or more of their professional time within the last five years to “serving parties in investment or financial industry employment disputes.” Another part of the proposed rule classifies these individuals as non-public. While most of these arbitrators could become public after the five-year cooling off period, they would stay non-public forever if they accumulated 15 years of service in their career.
Although the proposed changes reference the Customer Code of Arbitration Procedure, FINRA states that they also apply to the Industry Code of Arbitration Procedure. This is a long, detailed rule filing running 61 pages. Space considerations required that we limit our analysis to the key changes. There are other less dramatic changes in the proposed rule and we encourage readers to peruse the entire document.
(ed: *FINRA Dispute Resolution President Linda Fienberg said at the June 11th "Hot Topics" program sponsored by NYC's City Bar that she expected this rule would not be without controversy (SAA 2014-22). We think that’s an understatement! As we’ve said before, we can see the securities industry being concerned that an individual who has been out of the industry for many years will always be considered non-public, especially as to service on intra-industry disputes. We wonder why FINRA chose to also apply every change to the Industry Code? We can also see the customers’ bar being concerned about large numbers of their colleagues being disqualified from serving as public arbitrators. Ditto for arbitrators who find themselves reclassified or disqualified. **Our key concern is that this rule if approved will decimate the public roster. The rule filing makes no mention of the potential impact. ***There has been a “no-man’s land” between the two sets of arbitrator classifications, into which have fallen some talented and experienced arbitrators. In other words, many who fell out of the Public Arbitrator category did not meet the qualifications for classification as Non-Public Arbitrators. FINRA’s broadening of the qualifications in the Non-Public category means that those individuals will now be eligible to serve again. In this way, the Non-Public category moves closer to becoming a residuary classification, where all who do not qualify as Public Arbitrators may be eligible to serve in a Non-Public capacity. ****As of press time, the rule filing had not been published in the Federal Register. Publication will set the due date for public comments. We will be sure to let our readers and Twitter followers know when this happens. *****As we stated at the onset, there are more details and nuances to this proposal. We invite readers to contact us about authoring a lead article on the topic for the Securities Arbitration Commentator. Email us at email@example.com.) (SAC Ref. No. 2014-24-01, 6/25/14)
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