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Supreme Court: Whistleblowers Must Report To SEC For Dodd-Frank Whistleblower Protections

Earlier today, the U.S. Supreme Court issued its Opinion in Digital Realty Trust v. Somers, a case that has been closely watched by SEC whistleblowers and SEC whistleblower attorneys.  In today’s Opinion, the Supreme Court ruled that employees must report to the SEC in order to be able to claim private Dodd-Frank whistleblower protections.

Background Of The Case

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On June 26, 2017, the Supreme Court agreed to hear the case.  For background on the case, you can read my earlier post about it by clicking here.

The Supreme Court heard oral arguments in the case on November 28, 2017.  That same day, I gave an interview to Bloomberg Radio about the oral arguments.  During the program, I provided an SEC whistleblower lawyer’s perspective; the other guest was one of the lawyers for Digital Realty.  You can listen to the Bloomberg interview by clicking here.

Individuals Already Must Report To The SEC To Be Eligible For An SEC Whistleblower Award

It is already well-established that in order to be eligible to receive an SEC whistleblower award, individuals have to report their information to the SEC.

The SEC created rules for how people must report their information under the SEC whistleblower program.  It has also been well-established that in order to be considered as a “whistleblower” for purposes of receiving an SEC whistleblower reward, an individual is required to follow the SEC’s rules and procedures for submitting their information to the SEC.  (See, e.g., Opinion, p. 19.)

Dodd-Frank Whistleblower Protections

The Dodd-Frank Act gives certain protections to SEC whistleblowers.  Among those protections are the rights not to be retaliated against or terminated by an employer for providing information about frauds and securities violations to the SEC.  Under Dodd-Frank, employees who are retaliated against or terminated for reporting such things to the SEC have the right to bring their own private lawsuits in court against their employers.

One big question that had divided U.S. District Courts and U.S. Courts of Appeals was whether someone who only reports internally to their employer, but does not also report to the SEC, can claim Dodd-Frank whistleblower protections and bring their own private lawsuit in court.  The U.S. Court of Appeals for the Fifth Circuit had answered this question “no”.  The Courts of Appeals for the Second and Ninth Circuits had said “yes”.

Private Dodd-Frank Whistleblower Protections Are Only Available To Individuals Who Report To The SEC

Today, the Supreme Court agreed with the Fifth Circuit.  As stated in the Supreme Court’s Opinion:

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 [Securities and Exchange] Commission”.  (Opinion, p.2.)
Supreme Court Opinion
The Supreme Court's Opinion

The Supreme Court based its ruling in part on the definition of “whistleblower” found in the Dodd-Frank Act’s section on the SEC whistleblower program.  That definition states that a “whistleblower” is:

“any individual who provides … information relating to a violation of the securities laws to the [Securities and Exchange] Commission …” (Opinion, pp. 4, 9) (italics in original.)

The Supreme Court said that this definition is “clear and conclusive”.  (Opinion, p. 18.)

Another reason the Supreme Court gave is that the Dodd-Frank Act’s SEC whistleblower program was created “to motivate people who know of securities law violations to tell the SEC.”  (Opinion, pp.4, 11.)

US Cogress

One way that Congress sought to motivate people to report to the SEC was by providing for SEC whistleblower awards. Another way that Congress sought to motivate people was by giving extra SEC whistleblower protections to people who report to the SEC.  (Opinion, p. 11.)

According to the Supreme Court:

Dodd-Frank’s award program and anti-retaliation provision thus work synchronously to motivate individuals with knowledge of illegal activity to “tell the SEC.”  (Opinion, p. 11.)

Elsewhere, the Supreme Court stated:

… it is understandable that the statute’s retaliation protections, like its financial rewards, would be reserved for employees who have done what Dodd-Frank seeks to achieve, i.e., they have placed information about unlawful activity before the Commission to aid its enforcement efforts.  (Opinion, p. 16.)

What This Means For Potential SEC Whistleblowers And SEC Whistleblower Lawyers

Because of today’s Supreme Court ruling, employees who report securities frauds or violations to their employers, but have not yet given their information to the SEC, cannot avail themselves of Dodd-Frank whistleblower protections by bringing their own lawsuits in court.  An employee who has not reported to the SEC and who is retaliated against or fired by their employer is not covered by those Dodd-Frank whistleblower protections.

Only after someone reports their information to the SEC are they eligible to receive an SEC whistleblower award.

Only after someone reports their information to the SEC are they protected from retaliation and termination by the Dodd-Frank Act.

It would therefore be prudent for anyone who has information about a securities fraud or violation to report it immediately to the SEC, as the former Director of the SEC’s Enforcement Division urged.  (Click here for my post about the Director’s remarks.)

Keep in mind that whistleblowers are required to report their information in the form and manner required by the SEC.  (See, e.g., Opinion, p. 19.)

It might therefore be prudent for potential whistleblowers to consult with an experienced SEC whistleblower lawyer to make sure they adhere to all of the SEC’s rules and procedures, and for help in presenting their information in a way that will hopefully be well-received by the SEC Staff.

Additional Information

If you would like to read today’s Supreme Court Opinion about Dodd-Frank whistleblower protections, you can find it at:

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The Pickholz Law Offices represents U.S. and international clients in securities and white collar cases. The Firm has helped whistleblowers report frauds to the SEC, CFTC, and IRS, and has defended clients in investigations by the SEC, CFTC, DOJ, FINRA, and other financial and securities enforcement regulators.

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