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First Circuit: FCPA is not a “Rule or Regulation of the SEC” Under SOX Whistleblower Provision


On July 13, 2022, the First Circuit reversed a denial of summary judgment, finding plaintiff could not satisfy his burden of showing he engaged in protected activity under the SOX whistleblower protection provision.  Baker v. Smith & Wesson, No. 21-2019 (1st Cir. 2022).  The decision affirms that protected activity under SOX is limited to reporting violations of “any rule or regulation” of the SEC, which does not include federal statutes like the Foreign Corrupt Practices Act (“FCPA”).


Plaintiff filed a complaint against his former employer, Smith and Wesson (“S&W”), alleging S&W retaliated against in violation of SOX for reporting allegedly illegal conduct by S&W employees.  S&W moved for summary judgment, arguing Plaintiff failed to show that he engaged in protected activity.  Plaintiff responded that he reasonably believed the reported conduct violated 15 U.S.C. § 78m(b)(2), (5) of the FCPA, and that the FCPA is a “rule or regulation of the SEC” (and thus falls under the protected activity provision of SOX).  The district court agreed with Plaintiff and denied S&W’s motion for summary judgment.


On appeal, the First Circuit disagreed with the district court’s interpretation of the “any rule or regulation of the SEC” provision in SOX, finding that the statute’s plain text makes clear that the FCPA is not a rule or regulation of the SEC.  Section 806 limits protections of whistleblower claims to violations of (1) sections 1341, 1343, 1344, or 1348; (2) any rule or regulation of the SEC; or (3) any provision of federal law relating to fraud against shareholders.  Relying on the Ninth Circuit’s explanation in Wadler v. Bio-Rad Laboratories, Inc. that there is a difference between the meaning of “rule or regulation” and “law” (access our post on that decision here), the First Circuit agreed that a “law” encompasses statutes – like the FCPA – whereas a “rule or regulation” does not.  Further, the inclusion of “of the SEC” in Section 806 of SOX makes clear that the phrase “any rule or regulation” does not include federal statutes because the SEC does not possess the authority to enact statutes.  Finally, “of” also does not mean “relating to,” as Plaintiff argued, because “relating to” appears in the next provision of Section 806 (“any provision of federal law relating to fraud against shareholders”) and thus demonstrates Congress’ intent to use “of” in the context of “any rule or regulation of the SEC.”


The First Circuit’s narrow reading of what constitutes an SEC “rule or regulation” will make it more challenging for plaintiffs to show they engaged in protected activity under SOX.


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