Does It Depend on Who Hears the Whistle? Supreme Court Narrows Whistleblower Protection for Reporting SEC Violations If you report a suspected SEC violation to your company, but not to the SEC, are you a protected whistleblower? Not according to the Supreme Court’s decision resolving a circuit split on who is entitled to Dodd-Frank’s whistleblower protections. On Wednesday, in Digital Realty Trust, Inc. v. Somers, the Supreme Court ruled 9-0 in favor of limiting the Dodd-Frank Act’s definition of whistleblower to those who report their allegations to the SEC, thus excluding individuals who report their complaints internally from whistleblower protection. The issue before the Supreme Court was the language of Dodd-Frank, which defines “whistleblower” as “any individual who provides . . . information relating to a violation of the securities laws to the Commission, in a manner established . . . by the Commission” (15 U.S.C. § 78u-6(a)(6)).

The refrain of the opinion is that a would-be whistleblower must “tell the SEC” in order to benefit from Dodd-Frank’s anti-retaliation provision. It’s always notable when all nine justices agree, and here the Supreme Court relied on the unambiguous, clear, and conclusive language of the statute to hold that anti-retaliation protection does not apply unless and until the SEC is notified of alleged securities law violations. Despite urging from the Solicitor General to expand the whistleblower definition for anti-retaliation purposes, the Supreme Court held that anti-retaliation protection does not extend to an individual who has not reported a violation of securities law to the SEC. The decision reversed the Ninth Circuit and resolved a circuit split. The Fifth Circuit had previously held that employees are required to provide information to the SEC to take advantage of Dodd-Frank’s anti-retaliation safeguard, while the Second and Ninth Circuits extended Dodd-Frank remedies to employees who reported alleged wrongdoing only to their employers.

The Supreme Court emphasized that the holding is consistent with the purpose of Dodd-Frank, the “core objective” of which is to motivate people to tell the SEC about violations of the securities laws. The Supreme Court acknowledged that giving the statute its plain-text reading “shields fewer individuals from retaliation than the alternative,” but again emphasized that Dodd-Frank’s main goal is to incentivize reporting alleged violations to the SEC.

Time will tell whether the Supreme Court’s ruling will affect the number of whistleblower actions. The decision is limited to the Dodd-Frank whistleblower statute involving securities laws and does not affect the numerous other whistleblower protection statutes. As an illustration the Supreme Court distinguished actions under the Consumer Financial Protection Bureau’s jurisdiction and noted that the CFPB whistleblower-protection statute permits a covered employee to provide information to an employer, the CFPB, or a local, state, or federal government authority or law enforcement agency.

In Case You Missed It: False Claims Act Suits Relied Heavily on Whistleblowers in 2017 Companies that work with the federal government (think Medicare and Medicaid reimbursements, government contracts, grant funding) need to stay up to date on the False Claims Act (FCA). The FCA is one of the primary tools used by employee whistleblowers to bring actions against their employers. In 2017, whistleblowers filed 674 new FCA actions and recovered $3.4 billion for the government in settlements and judgments—of which the whistleblowers kept $393 million as their share.

To keep you informed on the status of the law, Bradley’s Government Enforcement and Investigations Practice Group is pleased to present the 2017 FCA Year in Review, our annual review of significant FCA cases, developments, and trends. Longtime readers of our Year in Review will notice that it has a new look and improved functionality, making it an easy-to-read, printable resource, as well as a convenient and searchable digital tool.

whistleblowerIf you report your company for a federal securities violation, just how safe is your job? Curiously, that may depend on where you live. Recently, the Ninth Circuit weighed in, adding to a split among courts across the country regarding retaliation protection for employees who turn in their employers for violations of federal securities laws.

What laws?

The Sarbanes-Oxley Act (SOX) and the Dodd-Frank Act (Dodd-Frank) are aimed at encouraging reporting of unlawful accounting and auditing procedures within public companies. Both SOX and Dodd-Frank include specific protections for employees who engage in that type of reporting. SOX, which was passed in 2002 after the Enron scandal, protects whistleblowers who lawfully provide information about illegal financial practices to “federal agencies, Congress, or a person with supervisory authority over the employee.” Dodd-Frank was passed in 2008 after the subprime mortgage crisis and protects employees who provide information relating to a violation of the securities laws to the Securities and Exchange Commission (SEC).

So what’s the rub on whistleblower protection?

Courts have differing opinions on whether an employee who reports a violation of Dodd-Frank to supervisors within the company, but not to the SEC, is entitled to retaliation protection. In 2013, the Fifth Circuit in Asadi v. G.E. Energy (USA) adopted a narrow definition of whistleblower under Dodd- Frank. In Asadi, an employee was terminated after he made an internal company report of a possible securities law violation. He sued claiming that his firing was a violation of the whistleblower protection from retaliation under Dodd-Frank. The lower court held that since Mr. Asadi only reported the violations within his company, and did not report them to the SEC, he was not entitled to any protection as a whistleblower. The Fifth Circuit agreed and affirmed the dismissal of Mr. Asadi’s case.

Both the Ninth and Second Circuits, however, have taken a much broader view of the whistleblower protection. Those courts noted that Dodd-Frank specifically references SOX protection—which expressly protects reporting securities violations to a supervisor. For that reason, those courts held that the whistleblower protection covers both an employee who only reports problems internally and an employee who reports potential violations to the SEC. In the Ninth Circuit case, Somers v. Digital Realty Trust, a vice president made several reports to senior management regarding possible securities law violations and was terminated before he could report the issues to the SEC. He sued under the Dodd- Frank whistleblower protection provisions and the lower court ruled he was a protected whistleblower even for an internal complaint. The Ninth Circuit agreed that he was entitled to that protection and affirmed the lower court’s refusal to dismiss his case.

Now what?

Where does this split leave employers? Overall, whistleblowers, no matter the context, are usually sympathetic parties to both judges and juries. Common sense would hopefully guide most companies to encourage their employees to report any possible illegal acts that are occurring among their ranks. Despite the Fifth Circuit’s narrow interpretation, the safest course is to avoid even the appearance of retaliation against an employee who is reporting a possible securities law violation. In the event that happens, the employer may have bigger issues to address than the reporting party’s status as an employee.