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Alert of SEC Crucial to Whistleblower Immunity


Whistleblowers are people who expose any kind of information or activity that is deemed illegal or unethical within an organization. Under certain laws whistleblowers are afforded protections for their actions.

Recently, in Digital Realty Trust, Inc. v. Somers, the United States Supreme Court addressed whether the Dodd-Frank Act’s anti-retaliation provision extended to an individual who had not reported a violation of the securities laws to the SEC.

Digital Realty is a real estate investment company responsible for the acquisition and development of data centers. Paul Somers, who was a vice president, alleged that the company terminated him after he reported to senior management suspected securities-law violations by the company. However, he did not alert the SEC prior to his termination nor file an administrative complaint within 180 days.

Somers sued in the Northern District of California, alleging whistleblower retaliation under Dodd-Frank. Digital Realty filed a motion to dismiss, arguing that he did not quality as a whistleblower because he only reported his allegations to company management, not the SEC. The district court denied Digital Realty’s motion. The Ninth Circuit affirmed on appeal. The Supreme Court granted certiorari.

Two different acts apply to the protection of whistleblowers. The Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 were both passed by Congress to cut back on corporate fraud.

Both acts shield whistleblowers, but Sarbanes-Oxley applies to all “employees” who report misconduct to the SEC whereas Dodd-Frank protects people who have information relating to a violation of the securities laws to the SEC. Dodd-Frank also prevents employers from discharging or harassing whistleblowers who are complying with an SEC investigation.

In terms of recovery procedures, Sarbanes-Oxley requires a whistleblower to exhaust all of his administrative remedies before brining suit in court. Dodd-Frank, on the other hand, permits a whistleblower to sue the employer directly in federal court. Dodd-Frank, also allows the court to award double backpay with interest to a whistleblower who has been retaliated against.

Here, however, the Supreme Court held that under neither the Sarbanes-Oxley Act or the Dodd-Frank Act could Somers recover as a whistleblower. According to Justice Ginsburg, the definition is clear. Somers did not provide information to the SEC prior to being fired from his job. Therefore, though retaliation may have occurred in some way, he was not retaliated against in the federally defined whistleblower definition. The Supreme Court reversed the Ninth Circuit’s decision.

The main takeaway here is that if you are involved in a whistleblower situation at work and you fear retaliation, alerting senior management is not enough. It is essential to notify the SEC, either in compliance with Sarbanes-Oxley or Dodd-Frank.

If you have a whistleblower claim against your employer, contact Ingram Law LLC (205) 335-2640..

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