What happens when Congress passes a law with various provisions that generically apply to any securities law violations without thinking through, on a micro level, the intersection of such provisions?
The answer is this recent Second Circuit decision in the Liu Meng-Lin v. Siemens.
This observation is the same as it was in 2012 concerning Khaled Asadi v. GE Energy (see here for the prior post) and as it was in 2013 concerning the trial court decision in the Liu case (see here for the prior post).
To repeat, an odd dynamic exists when a foreign national is unable to maintain a private cause of action under Dodd-Frank’s anti-retaliation provisions based on allegations that his foreign employer retaliated against him for internally reporting conduct that could implicate the Foreign Corrupt Practices Act, yet that same foreign national can be awarded a whistleblower bounty under Dodd-Frank should the SEC bring an enforcement action based on the information the foreign national provided to it.
In Liu, the Second Circuit held, consistent with the trial court, that the anti-retaliation provisions of Dodd-Frank do not apply extraterritorially because “a statute is presumed, in the absence of clear congressional intent, to apply only domestically.”
Thus, the Second Circuit dismissed Liu’s complaint because Liu alleged that he was a non-citizen (a citizen and resident of Taiwan), employed by a foreign company (a former compliance officer of Siemens China, a Chinese corporation that is a wholly owned subsidiary of Siemens, a German corporation with shares listed on the New York Stock Exchange), and that all the events allegedly giving rise to liability occurred outside the United States (Liu alleged that Siemens employees were indirectly making improper payments to officials in North Korea and China in connection with the sale of medical equipment in those countries).
Consistent with the odd dynamic referenced above, Liu argued that Dodd-Frank’s anti-retaliation provisions should have extraterritorial application because Dodd-Frank’s whistleblower bounty provisions seemingly do citing to SEC guidance and regulations for support.
As to Liu’s argument regarding the whistleblower bounty provisions, the Second Circuit initially observed in dicta that “it is far from clear that [the SEC’s] assertion that a statute has extraterritorial effect, unmoored from any plausible statutory basis for rebutting the presumption against extraterritoriality, should be given deference.”
More to the point, the Second Court concluded as to the anti-retailiation provisions follows.
“[E]ven if we assume that the [SEC regulations] clearly apply the bounty program to whistleblowers located abroad and that some deference would be due such an agency interpretation, it would not follow that Congress intended the anti-retailiation provision to apply similarly. […] [A] regulation addressing the bounty provision cannot be taken to support the proposition that the anti-retailiation provision should apply extraterritoriality. […] [E]xtraterritorial application of the bounty and anti-retailiation provisions have far different international ramifications. Providing rewardings to persons, foreign or domestic, who supply information about lawbreaking is far less intrusive into other countries’ sovereignity than seeking to regulate the employment practices of foreign companies with respect to the foreign nationals they employ in foreign countries. Applying the anti-retaliation provision in circumstances such as Liu’s would effect such an intrusion. Thus, whatever their merits, none of the arguments that the bounty provision is meant to have extraterritorial reach provide any support for Liu’s claim that the anti-retaliation provision is meant to have extraterritorial reach.” (emphasis is original).
From my perspective, the most interesting aspect of the Second Circuit’s decision is the above dicta statement which calls into question whether Dodd-Frank’s bounty provisions have extraterritorial application.
This will be an interesting issue to follow and once again the current odd dynamic (as well as potential future odd dynamics) are the direct result of Congress being sloppy in passing a law with various provisions that generically apply to any securities law violations without thinking through, on a micro level, the intersection of such provisions.