A TD Ameritrade Holding Corp employee who said the firm retaliated against him for complaining about potential securities law violations must arbitrate the claim instead of suing in court, a federal appeals court ruled on Monday.
The ruling by the 3rd U.S. Court of Appeals could further weaken U.S. Securities and Exchange Commission rules that carry out procedures required by the 2010 Dodd-Frank financial reform law to protect whistleblowers and curb retaliation against them by employers, lawyers said.
The law created a private cause of action for whistleblowers whose employers retaliate against them for lawfully providing information to the SEC, or making disclosures protected under the Sarbanes-Oxley governance law. But a spate of recent federal court decisions are split about the reach of those protections.
The three-judge panel on Monday ruled that Dodd-Frank did not invalidate an earlier employment agreement between a unit of TD Ameritrade Holding Corp and Boris Khazin, who worked in the firm's compliance group, to arbitrate employment-related disputes through the Financial Industry Regulatory Authority's system.
Employment agreements that brokers and other brokerage employees sign when joining firms typically include so-called "mandatory arbitration" provisions.
The decision hinged on language in Dodd-Frank that makes mandatory arbitration agreements unenforceable with respect to whistleblower claims under the Sarbanes-Oxley Act of 2002, a law that bolstered standards for U.S. company boards, corporate management and accounting firms.
Dodd-Frank, however, did not specifically bar mandatory arbitration agreements with respect to the private right of action the law created.
"The ruling undercuts the very purpose of Dodd-Frank," said Keith Biebelberg, a lawyer in Millburn, New Jersey who represents Khazin. The court's analysis of the law was "too literal" Biebelberg said.
Khazin, who was responsible for due diligence on financial products offered to TD customers, had discovered that TD priced one of its products in a manner that did not comply with securities industry rules, according to the opinion. His supervisor declined to change the practice and told him to stop sending emails about his concerns.
Khazin was terminated over a purported billing irregularity, according to the opinion.
"We are pleased with the ruling and find it consistent with the developing caselaw related to Dodd-Frank whistleblower claims," a TD spokeswoman said.
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