Who Is a Whistleblower Under Dodd-Frank’s Anti-Retaliation Provisions?

by Erika A. Kelton and John W. Tremblay

Who counts as a “whistleblower” when it comes to Dodd-Frank’s statutory protections against employment retaliation? In recent years, corporate defendants have argued that employees who complain internally about wrongdoing are not protected by Dodd-Frank’s whistleblower anti-retaliation provisions if they do not report wrongdoing to the Securities and Exchange Commission before they suffer retaliation.

Several courts have considered the question. In 2015, the Second Circuit ruled in Berman v. Neo@Ogilvy LLC (PDF: 1,469 KB), No. 14-4626 (2nd Cir. Sept. 10, 2015), that Dodd-Frank’s protections apply to internal whistleblowers, as well as those who report to the SEC. Berman split from the Fifth Circuit which had earlier ruled in Asadi v. G.E. Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013), that the Dodd-Frank anti-retaliation provisions were strictly limited to whistleblowers who reported to the SEC before they suffer retaliation.

Last week the Ninth Circuit weighed in.

In Somers v. Digital Realty Trust (PDF: 94 KB), No. 15-17352, 2017 WL 908245 (9th Cir. Mar. 8, 2017), the Ninth Circuit joined the Second Circuit in holding that Dodd-Frank protects whistleblowers from retaliation for reporting suspected violations of securities laws to their employers. Somers rejected the Asadi ruling confining Dodd-Frank protections only to whistleblowers who report to the SEC.

Like Berman, Somers deferred to the SEC’s interpretation of Dodd-Frank, which recognizes that whistleblowers are entitled to protection regardless of whether they report wrongdoing to their employer or to the Commission. Indeed, the vast majority of whistleblowers – as many as 90 percent – report their concerns internally first. Only if internal reporting fails to address the wrongdoing, do most whistleblowers take the courageous step of reporting violations of the law to enforcement authorities.

Paul Somers was fired after he complained to senior management about his supervisor’s actions to eliminate internal controls, which he believed violated the Sarbanes-Oxley Act. Seeking redress, Somers argued that he had been retaliated against in violation of Dodd-Frank’s anti-retaliation provisions. Digital Realty Trust (“DRT”) sought to dismiss the lawsuit, contending that Somers did not qualify for protection because he did not first report to the SEC and therefore was not a “whistleblower” under Dodd-Frank.

The Ninth Circuit rejected DRT’s argument, reasoning that if anti-retaliation protection applied only to people who reported to the SEC first, then Dodd-Frank’s explicit protections for employees who make protected disclosures under Sarbanes-Oxley would be rendered virtually meaningless.

The irony of DRT’s, Neo@Ogilvy’s, and GE Energy’s positions is that during the SEC whistleblower program rulemaking, employer groups argued fiercely that employees should be mandated to report wrongdoing internally first, lest internal reporting procedures be undermined by employees who go directly to the SEC. The shift in position suggests how many companies view their internal compliance mechanisms quite cynically.

Indeed, if DRT and like-minded companies  get their way, they will have strongly incentivized employees to bypass internal compliance mechanisms altogether. It  could become a race to see whether a company could fire an employee who speaks up about wrongdoing faster than that employee can file a whistleblower claim with the SEC.

The Dodd-Frank Act’s promise of robust anti-retaliation protection to those who speak up both within their companies and to law enforcement is critical to encouraging would-be whistleblowers to come forward. The SEC Whistleblower Program has been heralded as a “game-changer” for securities enforcement. Thousands of whistleblowers have provided information through the program since it launched in mid-2010, and it is estimated that more than a billion dollars have been recovered due to whistleblowers.

Dodd-Frank’s anti-retaliation protection often is what helps a potential whistleblower off the fence to report fraud to his or her employer, and maybe, eventually, the SEC or the Commodity Futures Trading Commission.

The decision in Somers to protect the whistleblower from retaliation even though he never spoke to a regulator is not simply a just decision in this case, but it sends a vital message to the next whistleblower who is deciding whether it is worth the sacrifice to report a fraud: Speak up, the government will have your back.

Erika A. Kelton is a partner at Phillips & Cohen LLP.  Ms. Kelton has won three SEC whistleblower awards for clients, including the largest SEC whistleblower award — more than $32 million awarded to an international whistleblower in a case involving massive securities fraud.  John W. Tremblay is an associate at Phillips & Cohen LLP who works on whistleblower cases brought under the False Claims Act and the SEC and CFTC whistleblower programs.


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