February 21, 2018

Supreme Court Ruling May Encourage Reporting of Suspected Violations to the SEC

On February 21, 2018, the U.S. Supreme Court clarified and narrowed the definition of “whistleblowers” who, under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, are eligible for bounties and protected from retaliation under certain circumstances. In Digital Realty Trust, Inc. v. Somers, slip opinion, No. 167-1276 (Feb. 21, 2018), the Court held that Dodd-Frank’s anti-retaliation provisions extend only to individuals who report suspected violations of the securities laws to the SEC. In so doing, the Court rejected a former employee’s argument that the definition of a “whistleblower” as “any individual who provides . . . information relating to a violation of the securities laws to the Commission” applied only to the statute’s award program, and that he was eligible for anti-retaliation protection notwithstanding his failure to report to the SEC.

This ruling may tend to encourage disgruntled employees to report their suspicions to the SEC. To mitigate the risk of undisclosed reports, companies should continue to adopt best practices for whistleblower programs including effective reporting systems that encourage whistleblowers to report early and within the company, while avoiding dissuading potential whistleblowers from reporting outside the company. Employee training and education on reporting systems, subjects and procedures is also advised. Reporting systems should be secure and confidential, user-friendly, independent from regular internal business reporting channels, and monitored and audited frequently.

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