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The Supreme Court issued its opinion in Digital Realty Trust, Inc. v. Somers. In that case, the Court held that the SEC whistleblower program protection does not apply to internal whistleblowers. In doing so, the Court elevated statutory text above the pragmatic concerns animating the statute. It also 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.
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:
The Whistleblower protection within Dodd-Frank are very broad and prohibit retaliation against whistleblowers who
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 ensuring they don’t get fired for doing the right thing is an important part of that.
The section dealing with the Reward Program, in contrast, restricts “whistleblower” to individuals who actually provide 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.
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. In other words, does Dodd-Frank protect you if you fall within a Whistleblower protection category, but did not provide information to the SEC?
This was the situation presented in Digital Realty. Paul Somers reported securities violations to his bosses, and was fired for it, but did not file an SEC report.
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.
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).