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Supreme Court: Do Dodd-Frank whistleblowers have to go to SEC?

On Behalf of | Dec 4, 2017 | Whistleblower Protection

In most cases, whistleblowers have legal protections against retaliation. If you exercise your legal rights at work in good faith, for example, there are laws that prohibit your employer from firing you or taking other adverse job actions against you. If you report that your company is engaged in fraud against the government, you are not only protected from retaliation but also may claim a percentage of the recovered money as a reward. You should work with an experienced lawyer to ensure your rights are protected, but the law is on your side.

There is an area in which protections for whistleblowers are still unclear, however. When someone in the financial services industry reports a securities law violation, the degree of protection they receive can vary depending on whether they made the report to their employer or to the Securities and Exchange Commission.

The U.S. Supreme Court has just heard a case that could clarify the whistleblower protections in such cases. Both the Sarbanes-Oxley Act and the Dodd-Frank Act provide protection against retaliation. The Sarbanes-Oxley Act clearly protects internal reporters, but its statute of limitations is quite short. The Dodd-Frank Act also covers people who report Sarbanes-Oxley Act violations and its statute of limitations is longer. However, it is ambiguous about whether it protects people who only make internal reports.

The case involves a man who worked for Digital Realty Trust. He was fired in 2014 after making a report to management that his supervisor had violated Sarbanes-Oxley by eliminating certain internal controls. He chose to seek protection under the Dodd-Frank Act provision.

The SEC has interpreted the Dodd-Frank Act to protect internal whistleblowers from retaliation. The trial court and the 9th Circuit deferred to the SEC’s interpretation and held that the firing violated Dodd-Frank.

The 9th Circuit also found that Dodd-Frank must protect internal whistleblowers from retaliation or the law would result in an absurd outcome. If going to the SEC is the only way to get protection, a smart whistleblower would skip the internal report, which is bad public policy.

This second finding by the 9th Circuit may be important. This is because Justice Neil Gorsuch is known to oppose court deference to the interpretations of federal agencies when those interpretations appear out of step with the statutory language. During oral arguments, Gorsuch pointed out that the SEC’s interpretation is not explicitly supported by the text of Dodd-Frank.

It may be months before the high court releases a ruling in Digital Realty Trust v. Somers. In the meantime, if you are considering blowing the whistle on a securities law violation, it’s essential to protect yourself by contacting an attorney.