Some whistleblower protections afforded by the Dodd-Frank Act of 2010 were restricted by a U.S. Supreme Court ruling Feb. 21 that determined that anti-retaliation measures cover only informants who report alleged securities violations to the Securities and Exchange Commission (SEC), not those who report problems internally.
The Supreme Court’s decision was handed down in Digital Realty v. Somers, a case involving a whistleblower who claimed he was fired for reporting financial wrongdoing to company supervisors.
Two federal appeals courts had reached opposite conclusions in the case, with the Fifth Circuit finding that whistleblowers must report wrongdoing to the SEC first and the Second Circuit finding that the whistleblower protections covered employees who face termination, harassment, and demotion after calling out misconduct within the company ranks.
The Ninth Circuit upheld the Second Circuit’s ruling in February 2017, but the Supreme Court reversed the lower court’s ruling, focusing more on the strict language of the law instead of its potentially broader intent.
Supreme Court Justice Neil Gorsuch indicated during arguments in November that he was poised to rule against whistleblower Paul Somers in the Digital Realty case.
“How much clearer could [Congress] possibly have been?” Justice Gorsuch asked, emphasizing Dodd-Frank’s language that whistleblowers must report “to the commission” to be protected from retaliation, according to The National Law Journal.
Writing for the court, Justice Ruth Bader Ginsburg echoed that opinion, saying “To sue under Dodd-Frank’s anti-retaliation provision, a person must first ‘provid[e] … information relating to a violation of the securities laws to the commission.’”
The SEC and the U.S. solicitor general’s office have argued against a narrow interpretation of Dodd-Frank whistleblower protections, maintaining that some key employees, such as attorneys and compliance officers, would not be protected because they are usually required to report misconduct internally.
Whistleblowers who report violations internally remain protected by the 2002 Sarbanes-Oxley Act, but that law contains several major differences, including a short window of time for filing a complaint and the amount of compensation possible.
According to the Associated Press, the Supreme Court’s ruling “comes at a time when the Trump administration has already laid out changes it wants to make to the 2010 Dodd-Frank Act, which the administration believes went too far and has hurt economic growth.”
The Dodd-Frank Act was passed in response to the financial crisis of 2007–2008. The Act was designed to combat rampant Wall Street fraud and introduced the most significant changes to financial regulation in the U.S. since the regulatory reforms that followed the Great Depression.
“President Donald Trump has repeatedly attacked the law as a ‘disaster’ and has promised to do ‘a big number’ on it,” according to the AP.
National Law Journal