Supreme Court Holds Dodd-Frank Does not Apply to Internal Whistleblowers

On February 21, the United States Supreme Court made it more difficult for whistleblowers in to claim protections under the Dodd-Frank Act. In Digital Realty Trust, Inc. v. Somers the court held that in order for Dodd-Frank’s anti-retaliation protections to apply a whistleblower must report the wrongdoing to the SEC. The court decided internal disclosures of securities law violations do not offer protection under the rules of Dodd-Frank.

The facts of the case fit the mold of retaliation after a report of illegal conduct. Paul Sommers was a vice president at Digital Realty Trust. At that time, Digital Realty Trust was a real estate investment firm. Sommers discovered what he believed to be a number of securities law violations and proceeded with internal notification. Soon after his report he was fired. Digital Realty Trust terminated Sommers’ employment before he could notify the SEC.

A unanimous court found the SEC’s rules applying Dodd-Frank’s protections to internal whistleblowers invalid because it violated the clear language of the statute. Dodd-Frank states that anti-retaliation protections apply to individuals who have reported securities violations to the SEC and makes no mention of internal reporters.

As this article in the National Law Review explains, there are two statutes that protect individuals who report violations of securities laws, the Dodd-Frank and the Sarbanes-Oxley Act. Although they both protect whistleblowers, they define the concept differently and diverge in several other ways. Whistleblowers under Sarbanes-Oxley must file a wrongful termination claim with the Department of Labor within 180 days of being fired to be eligible for protection under the statute. Dodd-Frank does not make such a demand. The two statutes also offer different levels of monetary recovery with Dodd-Frank authorizing the payment of double back pay with interest in case of a violation. Sarbanes-Oxley limits the amount of recovery to back pay with interest.

Internal reporters can still use the protections provided by Sarbanes-Oxley. The consequences of the ruling, of course, remain to be seen. Some legal experts argue the holding will increase the likelihood of whistleblowers reporting violations of securities law to the SEC instead of just internally to ensure they remain protected under Dodd-Frank.

 

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