USDCSDNYOn August 24, 2016, the Southern District of New York denied Defendants’ motion to dismiss a Dodd-Frank whistleblower retaliation claim brought by its former co-CEO and Executive Chairman of its Board of Directors, finding that the Plaintiff made a protected complaint alleging securities law violations to a person with supervisory authority.  Kuhns v. Ledger, No. 15-cv-3246.

Background.  Plaintiff claimed that a Board member “resorted to fraud” by making “baseless representations” to raise money for the Company and that he told that Board member he should not be making such representations.  Following a separate disagreement about a financing proposal, Defendants allegedly informed Plaintiff that they wanted him to resign.  Plaintiff refused and demanded they cure what he perceived as violations of his employment agreement.  Shortly thereafter, two Defendants provided a draft Form 10-K to Plaintiff, but he refused to sign it unless numerous disclosures were added, including a mention of the purportedly atypical fashion in which the Company was offering securities, and how that could offering could prompt a inquiry from regulators that would be “expensive and difficult to defend.”  The next day, Plaintiff received a Notice of Termination which stated that his employment was being terminated for “Cause.”

Court Denies Defendants’ Motion to Dismiss.  Plaintiff proceeded to file a Dodd-Frank whistleblower retaliation claim in the Southern District of New York.  Defendants moved to dismiss per Rule 12(b)(6), arguing that the statutory text in Section 806 of SOX, cross-referenced by Dodd-Frank, required plaintiff to make his disclosure to someone with supervisory authority over him who also “has the authority to investigate, discover, or terminate misconduct.”  Rejecting this argument, the court reasoned that the plain text of the statute states that disclosure must be made to a senior employee “or” someone with such investigatory authority.  The court also rejected Defendants’ contention that Plaintiff did not reasonably believe Defendants’ conduct rose to the level of securities fraud.  But the court held that, even though Plaintiff did not specify a particular statutory subsection that the alleged fraud implicated, his statement about the possibility of a regulator inquiry arising from the way securities were being offered was sufficient to give Defendants notice that he was asserting a violation of securities laws.

Implications.  This decision reveals the degree of latitude some courts may afford Plaintiffs who allege generalized violations of securities laws in the context of Dodd-Frank whistleblower actions.

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Photo of Steven J. Pearlman Steven J. Pearlman

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular…

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular focus on defending companies against claims of employment discrimination, retaliation and harassment; whistleblower retaliation; restrictive covenant violations; theft of trade secrets; and wage-and-hour violations. He has successfully tried cases in multiple jurisdictions, and defended one of the largest Illinois-only class actions in the history of the U.S. District Court for the Northern District of Illinois. He also secured one of only a few ex parte seizures orders that have been issued under the Defend Trade Secrets Act, and obtained a world-wide injunction in federal litigation against a high-level executive who jumped ship to a competitor.

Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has testified in federal court. His investigations have involved complaints of sexual harassment involving C-suite officers; systemic violations of employment laws and company policies; and fraud, compliance failures and unethical conduct.

Steven was recognized as Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He is a Fellow of the College of Labor and Employment Lawyers.  Chambers describes Steven as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field.” Steven was 1 of 12 individuals selected by Compliance Week as a “Top Mind.” Earlier in his career, he was 1 of 5 U.S. lawyers selected by Law360 as a “Rising Star Under 40” in the area of employment law and 1 of “40 Illinois Attorneys Under Forty to Watch” selected by Law Bulletin Publishing Company. Steven is a Burton Award Winner (U.S. Library of Congress) for “Distinguished Legal Writing.”

Steven has served on Law360’s Employment Editorial Advisory Board and is a Contributor to He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is regularly quoted in leading publications such as The Wall Street Journal.

The U.S. Chamber of Commerce has engaged Steven to serve as lead counsel on amicus briefs to the U.S. Supreme Court and federal circuit courts of appeal. He was appointed to serve as a Special Assistant Attorney General for the State of Illinois in employment litigation matters. He has presented with the Solicitor of the DOL, the Acting Chair of the EEOC, an EEOC Commissioner, Legal Counsel to the EEOC and heads of the SEC, CFTC and OSHA whistleblower programs. He is also a member of the Sedona Conference, focusing on trade secret matters.