Last month, the Ninth Circuit ruled that Dodd-Frank protects whistleblowers who report wrongdoing internally rather than to the Securities and Exchange Commission.

The case involved a former employee of Digital Realty Trust, Inc. who alleged that he was fired after internally reporting on possible violations of US securities laws. Digital Realty argued that the plaintiff could not rely on Dodd-Frank's whistleblower protections because he did not report the alleged securities laws violations to the SEC. The Ninth Circuit disagreed, ruling that Congress intended the whistleblower protections provided by the Dodd-Frank Act to cover employees who had only reported possible violations to their supervisors but not to the SEC. The Ninth Circuit reasoned that because almost all retaliation would occur during the time between an employee reporting a possible violation to his supervisor and deciding to report the violations to the SEC once his employer did nothing to remedy the situation, narrowing the definition to whistleblowers who reported to the SEC first would leave many potential informers unprotected.

This holding widens the circuit split between the Second and Fifth Circuits—the Second Circuit holds that, because the provision is vague, courts should defer to the SEC's interpretation of the whistleblower protections as extending to employees who only report possible securities violations to their supervisors, while the Fifth Circuit holds that whistleblowers are only protected if they report to the SEC.

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