The Supreme Court this week placed limitations on the Securities and Exchange Commission’s whistleblower program. The case is Digital Realty Trust, Inc. v. Somers.
Endeavoring to root out corporate fraud, Congress passed the Sarbanes-Oxley Act of 2002 and the 2010 Dodd-Frank Act. Both Acts shield whistleblowers from retaliation, but they differ in important respects, the Court wrote. Sarbanes-Oxley applies to all “employees” who report misconduct to the Securities and Exchange Commission, any other federal agency, Congress, or an internal supervisor.
Dodd-Frank defines a “whistleblower” as “any individual who provides information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.”
A whistleblower is eligible for an award if original information provided to the SEC leads to a successful enforcement action. Sarbanes-Oxley’s anti- retaliation provision contains an administrative-exhaustion requirement and a 180-day administrative complaint-filing deadline, whereas Dodd-Frank permits a whistleblower to sue an employer directly in federal district court, with a default six-year limitation period.
The SEC’s regulations implementing the Dodd-Frank provision contain two discrete whistleblower definitions. For purposes of the award program, Rule 21F–2 requires a whistleblower to “provide the Commission with information” relating to possible securities-law violations. For purposes of the anti- retaliation protections, however, the Rule does not require SEC reporting.
Respondent Paul Somers alleges that petitioner Digital Realty Trust, Inc. terminated his employment shortly after he reported to senior management suspected securities-law violations by the company. Somers filed suit, alleging, a claim of whistleblower retaliation under Dodd-Frank. Digital Realty moved to dismiss that claim on the ground that Somers was not a whistle- blower because he did not alert the SEC prior to his termination.
The court held that Dodd-Frank’s anti-retaliation provision does not extend to an individual, like Somers, who has not reported a violation of the securities laws to the SEC.
“The question presented: Does the anti-retaliation provision of Dodd-Frank extend to an individual who has not reported a violation of the securities laws to the SEC and therefore falls outside the Act’s definition of 'whistleblower?'
"We answer that question n, wrote Justice Ruth Bader Ginsburg, expressing the majority opinion. To sue under Dodd-Frank’s anti-retaliation provision, a person must first “provide information relating to a violation of the securities laws to the Commission,” she explained.