Consumer Fraud

Judge Rules Whistleblowers Can Provide SEC with Confidential Documents To Substantiate Fraud Claims

SEC Office of the Whistleblower wikipedia image 342x210 Judge Rules Whistleblowers Can Provide SEC with Confidential Documents To Substantiate Fraud ClaimsA San Diego federal judge’s Feb. 14 ruling in a whistleblower dispute involving Bank of Internet (BofI) and a former employee who provided classified information to federal regulators about potential securities violations enhances protections for certain whistleblowers who report fraud.

According to Courthouse News Service, U.S. District Judge Cynthia Bashant denied most of BofI’s motions for a summary judgement of whistleblower protections from Charles Matthew Erhart, who was formerly employed as BofI’s internal auditor.

Mr. Erhart started working for San Diego-based BofI in September 2013. He reported the bank to the Securities and Exchange Commission (SEC) upon discovering it worked with an unregistered securities dealer and failed to comply with federal reporting requirements. He substantiated his claims by providing the SEC with sensitive information, including client data and other documents that the bank says are confidential.

BofI accused Mr. Erhart of violating company non-disclosure agreements and the Computer Fraud and Abuse Act, alleging that he “disclosed confidential information to inflict maximum damage on the company and ‘benefit short sellers at the bank’s expense,’ not simply to pursue his whistleblower claims,” Judge Bashant wrote in her order.

Mr. Erhart countersued BofI, accusing the bank of violating whistleblower protections. The suit prompted BofI to file a motion for summary judgement of 13 of Mr. Erhart’s defense claims, the Courthouse News reported.

Judge Bashant said that public policy heavily favors whistleblowers who report fraud against the federal government, so the bank cannot sue Erhart for reasonably reporting possible banking violations to the SEC, Courthouse News reported.

“It is implicit in the various whistleblower protection provisions that if an employee is permitted to provide information regarding believed wrongdoing to the government, including documents, the employer cannot then seek to impose tort liability on the employee for the same conduct,” Judge Bashant wrote.

By the same token, “Erhart should not be able to disclose any of BofI’s confidential information in his complaint simply because he is pursuing a whistleblower retaliation claim,” Judge Bashant found. However, he can do it if “doing so was ‘reasonably necessary’ to pursue his retaliation claim.”

Source: Courthouse News Service