The Supreme Court just decided a case that limits the whistleblower anti-retaliation provisions in Dodd-Frank. The Court handed down its decision in Digital Realty Trust v. Somers.
Dodd-Frank defines “whistleblower” as a person who provides “information relating to a violation of the securities laws to the Securities and Commission.” 15 U. S. C. §78u–6(a)(6). A whistleblower is then eligible for an award if original information provided leads to a successful enforcement action. Under Rule 21F, a whistleblower has to go through particular steps to be able to claim an award, but the anti-retaliation protections apply whether or not the requirements, procedures and conditions to qualify for an award are satisfied.
Mr. Somers reported suspected securities-law violations to senior management of Digital Realty Trust. He was fired. He did not alert the SEC prior to his termination. He didn’t file an administrative complaint within 180 days that is required under the Sarbanes-Oxley whistleblower protections. Nonetheless, he brought suit against the company with a claim of whistleblower retaliation.
The Supreme Court stuck with the clear definition in Dodd-Frank. A whistleblower for securities law violations must report the violation to the SEC to have protection from retaliation.
The Supreme Court pointed out that there is a different definition of whistleblower under the CFPB part of Dodd-Frank. Under 12 U.S.C. §5567(a)(1), a “covered employee” who provides information to the company, the FBI, or any other State, local, or Federal, government authority or law enforcement agency relating to a violation of a law subject to the CFPB’s jurisdiction gets whistleblower protection.
Mr. Somers argued that the limiting whistleblower definition should only apply to eligibility for awards. The Court completely disagreed with that argument and relied on the plain language of the statue. There were two concurring opinions, but they only took different approaches to whether the Court should take into consideration legislative history as part of statutory interpretation. The two concurring opinions agreed with the result, leaving Mr. Somers as a non-whistleblower. The ruling settled a split between the Ninth and Fifth Circuits, reversing the Ninth Circuit’s decision.
There is an obvious impact on compliance programs. As much as we might hope that employees who think there is a problem would tell someone internally first, there is much more incentive to go directly to the SEC.
It’s all confusing in application. A tip left with the SEC is kept anonymous, so a company would not know the identity of the whistleblower. A company could fire an employee who left a tip without knowing that the employee did so. Without a requirement that the employee also tell the company, the company is in the dark and may not even be aware of the problem.
The other piece missing in the arguments is whether there even was an actual securities law problem at Digital Realty Trust.
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