Supreme Court to Tackle SEC Whistleblower Retaliation

When the Dodd-Frank law was being debated, corporate lobbyists argued that fraud-fighters should be required to “blow the whistle” internally, before filing a case with the SEC.  Whistleblower advocates suggested that requiring whistleblowers to report internally would put many whistleblowers in harm’s way and discourage whistleblowing.  The SEC agreed.

Now a company, Digital Realty, has fired an internal whistleblower arguing  he is not protected because he filed a complaint against a supervisor under the Sarbanes-Oxley Act, rather than the Dodd-Frank whistleblower provisions.

The whistleblower won the case in the Ninth Circuit, which joined the Second Circuit in holding that Dodd-Frank’s anti-retaliation provision “unambiguously and expressly protects” those who report to the SEC directly and those who report internally within an organization.  But the Ninth Circuit decision creates a split with the Fifth Circuit, and Digital Realty has asked the Supreme Court to resolve the conflict, which the nation’s highest court has agreed to do.

Jane Norberg, Director of the SEC Whistleblower Office, cautions companies to be careful about what they wish for in this case, as the agency’s current interpretation of the law works to encourage employees to report potential misconduct internally. If the agency’s view is rejected, she said, “then the very first time that companies hear about a securities violation may be when the SEC knocks on their door instead of [through] an internal whistleblower.”

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