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The Legal Landscape for Whistleblowers May Have Changed

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It was always understood that whistleblowers enjoyed immunity from retaliation according to protections in the law. But the US Supreme Court has thrown a monkey wrench into the works. The key may be - before you do anything hire a good lawyer.

Washington, DCThe filing of an SEC whistleblower lawsuit may become that much more focused following a recent decision by the US Supreme Court that puts the emphasis on the reporting of apparent corporate wrongdoing to the US Securities and Exchange Commission (SEC), as required under guidelines entrenched in the Dodd-Frank Act.

To wit, an SEC Fraud Whistleblower lawsuit needs to be based upon allegations duly reported to the SEC in order to qualify as a whistleblower lawsuit - and to protect the whistleblower - under the law. A recent plaintiff who brought such a lawsuit saw his case gutted, in part because the whistleblower failed to report his allegations to the SEC prior to proceeding.

Whistleblowers were always protected - or are they?

The Orlando Sentinel (02/22/18) reports that the plaintiff in Digital Realty Trust v. Somers is the former vice president of a real estate investment trust who brought claims to his superiors at the firm about hidden cost overruns allegedly associated with a branch office of the firm in Asia. After he filed his complaint with top executives, the plaintiff alleges he was unjustly terminated from his position with the firm.

The plaintiff filed a whistleblower lawsuit against the firm, alleging that he was unjustly retaliated against for bringing his allegations forward. He claimed that federal law shields him from such retaliation.

But the US Supreme Court said, in sum, 'not so fast.' The unanimous decision held that for the plaintiff to be protected from whistleblower retaliation under federal law, he should have alerted the SEC about his concerns before he was fired from his job. The fact that he did not, causes those protections to become moot.

According to The Sentinel, those protections were entrenched in federal law following the economic collapse of 2008, as lawmakers wanted to make it easier for whistleblowers exposing stock fraud and other examples of wrongdoing, and to provide a shield against retaliation.

US Supreme Court leans on Dodd-Frank for guidance

However the Dodd-Frank Act which came into law in 2010 offers a definition of a whistleblower as someone having reported potential fraud "to the commission" - referencing the US Securities and Exchange Commission.

Considering the plaintiff did not report his findings to the SEC, but instead brought his concerns to his superiors internally, puts his qualification as a whistleblower in some legal doubt according to the guidance in Dodd-Frank.

The issue is not cut-and dried, however. Attorneys note that the Sarbanes-Oxley Act, which predates Dodd-Frank by eight years, does indeed offer legislative protection to whistleblowers provided they file a complaint with the US Department of Labor within 180 days of a job termination.

For its part the SEC adopted regulations that afforded whistleblowers broad protections against retaliation, including those who reported apparent wrongdoing to the firm's Board of Directors, or a supervisor.

It was against this backdrop that plaintiff Paul Somers was allowed to proceed with his SEC Whistleblower lawsuit, with the blessing of a US federal judge and affirmation from the 9th US Circuit.

Before you do anything, hire a lawyer

When the United States joined the whistleblower lawsuit in the US Supreme Court, attorneys for the Trump Administration concurred that the Court should hold to the usual understanding of the term 'whistleblower.'

However, in their unanimous decision the US Justices reversed the 9th Circuit ruling, and rejected the regulations adopted by the SEC surrounding whistleblowers.

"We find the statute's definition of 'whistleblower' clear and conclusive," Justice Ruth Bader Ginsburg opined. Its "unambiguous whistleblower definition, in short, precludes the commission from more expansively interpreting that term."

What does this mean to would-be whistleblowers going forward?

Rather than risk retaliation and the potential for losing a whistleblower lawsuit, observers note that it would be unwise to report wrongdoing internally as a first step - this, in spite of Sarbanes-Oxley and the SEC's own guidance, which has now been eschewed by the Supreme Court.

Instead, would-be whistleblowers should - as a first step - hire a good lawyer and take their concerns directly to the SEC, even before pursuing an SEC fraud whistleblower lawsuit.


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