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Supreme Court To Decide Whether Dodd-Frank Protects Internal Whistleblowers

US Supreme Court - Digital Realty Trust

Do the Dodd-Frank Act’s anti-retaliation provisions protect whistleblowers who report securities frauds or violations to their employers, if they do not also report them to the SEC?  This question is of particular concern to an SEC whistleblower lawyer, who may be faced with a client who has been retaliated against or fired by his or her employer for blowing the whistle internally to the company.

Since at least 2013, this may be the most often-litigated question arising under the SEC whistleblower program.  It is a question that has split and divided many U.S. District Courts and U.S. Courts of Appeals.

Last week, the U.S. Supreme Court agreed to hear and decide a case involving this very question.

Dodd-Frank’s Anti Retaliation Provisions

The actual title of the statute that codifies the SEC whistleblower program is “Securities Whistleblower Incentives and Protection”.  (15 U.S.C. § 78u-6.)

One subsection of the SEC whistleblower statute provides that:

No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower --

  • in providing information to the Commission in accordance with this section;
  • in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information; or
  • in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002, this chapter .. and any other law, rule, or regulation subject to the jurisdiction of the Commission.  (Citations omitted.)

(15 U.S.C. § 78u-6(h)(1)(A).)

An employee who believes that he or she was retaliated against in violation of the above provisions has the right to bring a private lawsuit in an appropriate U.S. District Court.  (15 U.S.C. § 78u-6(h)(1)(B).)

The relief available in the private lawsuit “shall include”:

  • reinstatement with the same seniority status that the individual would have had, but for the discrimination;
  • 2 times the amount of back pay otherwise owed to the individual, with interest; and
  • compensation for litigation costs, expert witness fees, and reasonable attorneys’ fees.

(15 U.S.C. § 78u-6(h)(1)(C).)

The Split Among The Courts

The reason why federal courts have disagreed over the answer to this question has to do with the language in the statute itself.

In addition to the sections cited above, some of the provisions in the Dodd-Frank Act and the SEC whistleblower statute specifically mention reporting to the SEC.  Other sections do not.

Some courts have interpreted the various sections of the statute to mean literally what they say.  Other courts have said that the wording, or the differences in wording from section to section, create ambiguities with regard to what the U.S. Congress really intended.

The SEC has written amicus briefs in several court cases brought by employees -- what are sometimes called “friend of the court” briefs.  In those briefs, the SEC has taken the position that the SEC whistleblower protections do apply to employees who only blow the whistle internally to their employers.  (See, e.g., the Brief of the Securities and Exchange Commission Amicus Curiae in Liu Meng Lin v. Siemens AG, 13-4385, Dkt. No. 50 (2d Cir.), filed on Feb. 20, 2014.)

Some courts that have found the statute to be ambiguous have deferred to the SEC’s interpretation, under what is known as the Chevron doctrine.  Other courts have refused to adopt the SEC’s position, and have instead made their own interpretations.

Both the U.S. Court of Appeals for the Second Circuit and the U.S. Court of Appeals for the Ninth Circuit have ruled that the SEC whistleblower protections do apply to employees who blow the whistle internally, even if the employees do not report to the SEC.

The U.S. Court of Appeals for the Fifth Circuit took the opposite view.  According to the Fifth Circuit, if an employee only reports the violations internally and does not blow the whistle to the SEC, then the Dodd-Frank anti-retaliation provisions will not protect that employee.  As interpreted by the Fifth Circuit, the anti-retaliation provisions only protect employees who blow the whistle to the SEC.

The Supreme Court Case

The case from the Ninth Circuit was Somers v. Digital Realty Trust, Inc.  In that case, the Ninth Circuit agreed with the Second Circuit that the SEC whistleblower protections apply even if the employee only reported internally to his or her employer.

The Ninth Circuit specifically disagreed with and refused to follow the Fifth Circuit.

Digital Realty petitioned the U.S. Supreme Court to hear its appeal of the case.  The question presented by Digital Realty to the Supreme Court was: Digital Realty Cert Granted

Whether the anti-retaliation provision for “whistle-blowers” in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 extends to individuals who have not reported alleged misconduct to the Securities and Exchange Commission and thus fall outside the Act’s definition of a “whistleblower.”

To resolve the question dividing the federal courts, on June 26, 2017, the Supreme Court granted Digital Realty’s petition.

The Supreme Court will hear arguments in the case sometime during the Court Term that begins in October 2017.

Needless to say, this is a case that will be watched closely by employees, SEC whistleblower attorneys, and employers alike.

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About the Pickholz Law Offices LLC

The Pickholz Law Offices LLC is a law firm that focuses on representing clients involved with investigations conducted by the U.S. Securities and Exchange Commission, FINRA, and other securities regulators.

The Pickholz Law Offices has represented employees, officers, and others in SEC whistleblower cases involving financial institutions and public companies listed in the Fortune Top 10, Top 20, Top 50, Top 100, Top 500, and the Forbes Global 2000. We were the first law firm ever to win an SEC whistleblower award for a client on appeal to the full Commission in Washington. Inside Counsel magazine named this achievement one of the five key events of the SEC whistleblower program. Examples of the Firm’s SEC whistleblower cases are available here.

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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.

The Firm’s founder, Jason Pickholz, is the author of the two-volume book Securities Crimes, has appeared on tv and radio, and has taught continuing legal education courses. A former BigLaw partner, he has been representing clients in financial and securities fraud cases since 1995. In recognition of his many achievements, Mr. Pickholz was elected by his legal peers to be a Fellow of The New York Bar Foundation, an honor limited to just 1% of all attorneys in the New York State Bar Association.

Mr. Pickholz has been counsel in many high-profile cases. He was the first attorney ever to win an SEC whistleblower award on appeal to the Commission, which Inside Counsel magazine called one of the five key events in the history of the SEC whistleblower program. On the defense side, Mr. Pickholz has defended clients in the SEC’s COVID-19 investigations, the CFTC’s cryptocurrency cases, and a former US Senator, among others.

If you want to speak with a CFTC, IRS, or SEC whistleblower lawyer, or with a white collar defense lawyer, you can call the Firm at 347-746-1222.

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