The Supreme Court issued its opinion in Digital Realty Trust, Inc. v. Somers recently, holding that the anti-retaliation provisions of the Dodd-Frank Act and SEC rule 21F protect employees who report possible Securities Law violations internally only if they have also filed a Tip, Complaint, or Referral (“TCR”) report with the SEC whistleblower program. In doing so, the Court elevated statutory text above the pragmatic concerns animating the statute and created what many employers will consider a perverse system. Now even if an employee prefers to raise concerns internally, he or she must report them to the SEC to obtain protection against retaliation.
Dodd Frank Whistleblower Protections
The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 929-Z, 124 Stat. 1376, 1871 (2010) (codified at 15 U.S.C. § 78o) included two distinct programs applicable to whistleblowers:
- A rewards program offering 10-30% of the SEC’s recovery to those who submit tips (“Reward Program”), see 15 U. S. C. § 78u-6(b)(1)(A-B)
- Protections against retaliation based on the whistleblower’s attempts to report her concerns (“Protections”), see 15 U. S. C. § 78u-6(h).
The Protections within Dodd-Frank are very broad and prohibit retaliation against whistleblowers who
- provide information to the SEC,
- who assist or testify in SEC investigations, and
- who report (even internally) suspected violations of securities laws or regulations
15 U. S. C. § 78u-6(h)(1)(A).
Broad whistleblower protections make sense. Congress wanted to encourage people to report potential securities fraud and making sure they don’t get fired for doing the right thing is an important part of that. However, in the section dealing with the Reward Program, Dodd-Frank defines “whistleblower” as an individual who provides the SEC with information relating to a securities violation. 15 U. S. C. § 78u–6(a)(6). This also makes sense in the context of the Rewards Program – rewards should be limited to people that actually give information to the SEC.
Are the Protections Limited To “Tipsters”?
As written, Dodd-Frank says that the Protections apply to whistleblowers, who fall within one of the three categories above. 15 U. S. C. §78u-6(h)(1)(A). If you apply the restrictive definition of whistleblower from § 78u–6(a)(6), it would mean that the broad protections apply only to people who filed a tip with the SEC. To put it simply, does Dodd-Frank protect you if you fall within one of the Whistleblower Protection categories, but you did not provide any information to the SEC? This was the situation presented in Digital Realty. Paul Somers reported concerns about securities violations to his bosses but did not provide any information to the SEC and was fired for doing so.
In a unanimous decision, the Supreme Court concluded that Dodd-Frank did not protect Paul Somers because he’d never reported his concerns to the SEC. The Court decided that Congress had intended to limit its protections to “tipsters” to encourage reporting to the SEC. Id. at 11.
Dangerous Implications for Digital Realty
The decision is plainly bad for whistleblowers, but the practical result is also bad for employers. Under the Supreme Court’s interpretation, if an employee intends to report a suspected securities violation internally, or has done so and fears imminent retaliation, she should report some information under SEC’s TCR program so as to qualify as a “whistleblower” eligible for the Whistleblower Protections.
In an upcoming post, we will discuss ways in which the SEC might extend the Whistleblower Protections to all whistleblowers. But until SEC remedies the effects of Digital Realty, any individual contemplating even internal reporting of securities violations should seek experienced legal counsel to help them ensure they are protected to the fullest extent of the law.
 The SEC has further defined Whistleblowers to include only individuals that submit information according to the SEC TCR process. 17 CFR § 240.21F-2(a).