GUEST BLOG: [In]Securities: A Hard Rain's A-Gonna Fall: A Whistleblower Retaliation Case Washes Out by Aegis Frumento Esq

August 19, 2022

a Guest Blog by

A Hard Rain's A-Gonna Fall: A Whistleblower Retaliation Case Washes Out

One has to feel for poor Trevor Murray. On August 5, 2022, he lost about $900,000; at the same time, his lawyers lost almost twice as much. Those were the amounts a lower court jury and judge awarded on Trevor's Sarbanes-Oxley whistleblower retaliation claim. But on that day the United States Court of Appeals for the Second Circuit overturned that award and sent him and his lawyers back to do it all over again. See also Litigation, as we litigators say, is a bitch. But there's more here than the curse of luck.

Commercial Mortgage-Backed Securities ("CMBS") are those synthetic financial instruments created when an investment bank takes a bunch of commercial real estate mortgages, slices and dices them to create artificial sets of cashflows (affectionately called "tranches," with a faux-French accent) with varying risk profiles, which it then sells as securities to unsuspecting institutional investors. These are the things that brought down the economy in 2008.

According to the Court of Appeals decision, Trevor's job was to analyze CMBS offerings for UBS Securities. SEC regs require CMBS analysts like him to certify his reports were independent. However, UBS's CMBS trading desk began pressuring him to clear his reports with them before certifying them. That, of course, undermined his independence, so he raised his concerns with his management. Spoiler alert: They soon fired him.

Two federal statutes protect whistleblowers in the securities industry. The older is in the Sarbanes-Oxley Act of 2002, now usually called SOX (though I like the Star-Trekkie name "Sarbox" that it started to be called when it was still new). The other is in the Dodd-Frank Act of 2010, or DFA (such a boring name!). SOX requires one to file claims with the Department of Labor in the first instance, and only if DOL doesn't decide within 6 months can you go to federal court. DFA allows one to go to federal court immediately, but if you are an industry professional subject to FINRA arbitration, your firm can force you to arbitrate instead (which is what happened to Trevor's parallel DFA case). See There are other differences between the two: SOX requires that a claim be filed with DOL in 90 days, while DFA has a 6-year statute of limitations; SOX permits recovery of back-pay and special damages like psychological pain and suffering, while DFA allows double back pay but no pain and suffering; SOX requires only internal whistleblowing, while DFA requires as a predicate the filing of a formal TCR with the SEC (see Both award attorneys fees.

But this is the major difference between the two statutes that concerns us here. DFA requires whistleblowers to prove that the retaliation was "because of" the whistleblowing activity. That "because of" language has been used in many other employment protection statutes, and has a long history in anti-discrimination cases. It means that the firing would not have happened "but for" the whistleblowing. It need not have been the only cause, but it had to be the one that broke the camel's back, so to speak.

SOX also has that "because of" language tucked into the text, and that was Trevor Murray's undoing. SOX prohibits public companies from taking adverse job actions against employees "because of" their having engaged in protected whistleblowing. But for years none of us gave that a second thought, because unlike DFA, SOX has a specific enforcement procedure built into it. It provides that a court case "shall be governed by the legal burdens of proof set forth in," of all places, the whistleblower protections for aviation safety. The drafters of SOX in essence equated selling financial instruments to flying commercial jets, a thought that should give one pause.

Those aviation safety provisions specifically state that to prove a retaliation case, a whistleblower must only prove that the whistleblowing "was a contributing factor" in the firing. Unlike DFA, we all thought, SOX did not put extra weight on retaliatory motive - so long as retaliation was in the mix of motives for the firing, the whistleblower should win, even if it was not the major or determinative factor.

So we thought, and so thought Trevor, his lawyers and the District Judge who presided over his trial and signed the judgment in his favor. And we were right to think so, because it is a rule of statutory construction that specific provisions trump general provisions. The "contributing factor" test is expressly stated to be the burden of proof in SOX cases brought in federal court, so it should prevail over any other test. We also thought so because the Court of Appeals told us so in 2013, when it wrote that to win a SOX retaliation claim "an employee must prove by a preponderance of the evidence that (1) [he] engaged in protected activity; (2) the employer knew that [he] engaged in the protected activity; (3) [he] suffered an unfavorable personnel action; and (4) the protected activity was a contributing factor in the unfavorable action." See Bechtel v. Admin. Rev. Bd., 710 F.3d 443 (2d Cir. 2013),

The Court of Appeals in Murray didn't disavow any of that. Rather, it added a requirement that the employer must also have had a "retaliatory intent" in order to satisfy SOX's "because of" language. But what does that even mean? How could retaliation be a "contributing factor" if it was not "intentional." How can one even engage in "unintentional retaliation"? Retaliation by its very nature is an intentional act. So what was the Court of Appeals saying?

It is not clear it even knew. It tried to answer that obvious question in a footnote (no. 4):

The inadequacy of the "contributing factor" standard utilized by the district court is illuminated by the fact that "tended to affect in any way UBS's decision to terminate plaintiff's employment" could include a scenario in which Murray's whistleblowing resulted in termination, but also a scenario in which, by virtue of his whistleblowing activity, Murray was insulated from a termination to which he would otherwise have been subjected sooner. In addition, "tended to affect" increases the level of abstraction such that a jury might look beyond whether the whistleblowing activity actually caused the termination to whether it was the sort of behavior that would tend to affect a termination decision.

Which is to say -- I think -- that unless the district court actually instructed the jury to find that that UBS "intentionally retaliated" against Trevor, they might have ruled in his favor because they thought that UBS's retaliation prevented him from being fired sooner rather than causing him to be fired later, or they might have thought the court was asking them a philosophical question about how UBS might have retaliated against Trevor rather than charging them to decide whether UBS actually retaliated against Trevor. The metaphysical conundrums this raises are better pondered after a few stiff ones. But no matter how I parse the Murray decision, the question -- When can a retaliation ever be anything but intentional? -- remains unanswered.

What can one say other than being a whistleblower is not for the faint of heart. They often torpedo their careers by standing up to illegal conduct, and we benefit from it. But when they try to recover whistleblower awards (see, e.g., or compensation for retaliation, we do not make it easy for them. It is almost as if we grudgingly tolerate them when we should celebrate them. That's why whistleblowers, like poor Trevor here, often end up drenched in a hard rain falling.


Aegis J. Frumento

380 Lexington Avenue
New York, NY 10168

Aegis Frumento co-heads the Financial Markets Practice of Stern Tannenbaum & Bell, New York City.  He represents persons and businesses in all aspects of commercial, corporate and securities matters and dispute resolution (including trials and arbitrations).  He has decades of experience representing SEC, CFTC and FINRA regulated firms and persons in regulatory enforcement investigations, hearings and lawsuits.  Drawing on his five years managing the Executive Financial Services Department of Morgan Stanley Smith Barney, Aegis has rare depth of experience in the securities and corporate governance laws affecting senior executives of public corporations.  When not litigating, Aegis enjoys working with new and existing broker-dealers, registered investment advisers, and private equity funds, covering all legal aspects from formation to capital raising. Those clients now include industry professionals looking to adapt blockchain technologies to finance and financial market enterprises, including the use of cryptosecurities to represent equity and debt interests. 

Aegis's long and distinguished career includes having been a Managing Director of Citigroup and Morgan Stanley, a partner and the head of the financial markets group of Duane Morris LLP, and the managing partner of Singer Frumento LLP.  He graduated from Harvard College in 1976 and New York University School of Law in 1979.  Aegis is a frequent author and speaker on securities law issues, and is often quoted in the media on current securities law developments.  He is the current Chairman of the New York City Bar Association's standing Committee on Professional Responsibility.

NOTE: The views expressed in this Guest Blog are those of the author and do not necessarily reflect those of Blog.

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