Whistleblowers Can Send SEC Confidential Documents

SAN DIEGO (CN) — Whistleblowers may be protected for releasing confidential information to the SEC in reporting possible fraud, a federal judge in San Diego ruled.

U.S. District Judge Cynthia Bashant denied most of San Diego-based BofI Federal Bank’s motions for summary judgment of whistleblower protections from its former internal auditor Charles Matthew Erhart.

Erhart began working an internal auditor for the bank in September 2013. He reported the bank to the SEC for dealing with an unregistered securities dealer and noncompliance with reporting requirements to the SEC, Bashant wrote in the Feb. 14 order.

Erhart forwarded many sensitive files to the SEC, including client information and other data the bank says is confidential.

BofI accused Erhart of violating non-disclosure agreements and the Computer Fraud and Abuse Act. Erhart filed a countersuit accusing BofI of whistleblower retaliation.

Erhart cited whistleblower protections to defend against BofI’s lawsuit, and BofI filed a motion for summary judgment of 13 of Erhart’s defense claims.

BofI claimed in its motion that Erhart “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,” Bashant wrote in the 34-page order.

She said 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.

“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,” Bashant wrote.

Public policy considerations also influence the court to deny summary judgment of Erhart’s defenses.

“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,” Bashant wrote. However, he can do it if “doing so was ‘reasonably necessary’ to pursue his retaliation claim.”

Bashant granted BofI summary judgment on six claims, and denied it on nine.

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