The Supreme Court decided in Digital Realty Trust, Inc. v. Somers that employees who report alleged securities laws violations internally, but not to the Securities and Exchange Commission ("SEC"), cannot bring claims under Dodd-Frank's anti-retaliation provision. The Court concluded that Dodd-Frank's "explicit definition" of whistleblower "resolve[d] the question" of whether the statute's anti-retaliation provision extends to an individual who has not reported a violation of securities laws to the SEC.
The Dodd-Frank Wall Street Reform and Consumer Protection Act defines "whistleblower" as "any individual who provides . . . information relating to a violation of the securities laws to the Commission . . . ." 15 U.S.C. § 78u-6(a)(6). The SEC had expanded the statutory definition of whistleblower for purposes of the anti-retaliation provision to include employees who reported misconduct internally.
In the Digital Realty Trust case, a divided panel of the Ninth Circuit had affirmed the district court's finding that Paul Somers could maintain an action against Digital Realty Trust for allegedly terminating him shortly after he reported suspected securities laws violations by the company to senior management. Somers had not reported the alleged violations to the SEC. The Supreme Court reversed the Ninth Circuit, resolving a circuit split among the Ninth, Fifth, and Second Circuits, and concluded that, 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 SEC.
Because whistleblowers now must report suspected securities law violations externally to the SEC to avail themselves of the protections and benefits of Dodd-Frank's anti-retaliation provision, which includes a six-year limitations period, potential recovery of double back pay, and no administrative exhaustion requirement, companies may see an increase in the speed in which employees file reports with the SEC. As a result, there may be less of an opportunity for a company to remedy the perceived violations internally before SEC involvement.
Troutman Sanders' Corporate and Government Investigations teams have extensive experience in assisting clients with compliance with securities laws, conducting internal investigations, and responding to whistleblower allegations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.