One step forward for compliance officers and effective whistleblowers: the House Financial Services committee has approved a bill to undo the damage of the Digital Realty Trust decision from the U.S. Supreme Court in 2018, which said that whistleblowers must first report their allegations to the SEC if they want to claim whistleblower protections.
The bill, HR 2515, amends the Dodd-Frank Act to clarify that whistleblowers who report misconduct to their employers and not to the SEC also have protections against retaliation under the law. It had bipartisan support and passed on a voice vote with little fanfare.
The legislation must still pass the full House of Representatives and the Senate, and then be signed into law by President Trump. So a long road remains ahead, and we don’t know when the bill might become law, if ever. Regardless, the first step is done.
Refresher course: in February 2018 the Supreme Court ruled 9-0 in Digital Realty Trust v Somers that the whistleblower protection provisions in Dodd-Frank only apply when a whistleblower brings his or her concerns to the Securities and Exchange Commission — not if a person first tries to report allegations internally.
This ruling, while correct under the letter of the law, does compliance officers and Corporate America no favors.
First, other laws and regulations still require corporate whistleblower hotlines (government contracting rules, for example), so the duties of fostering a speak-up culture don’t go away. Yet the Digital Realty Trust ruling sends employees the message that if they want to protect themselves when raising concerns about corporate misconduct, they should ignore the corporate compliance program and go directly to the SEC with their concerns.
Second, once the SEC does hear those concerns, the company loses its chance to win cooperation credit for voluntary self-disclosure of misconduct — because the whistleblower has already told the SEC, and cooperation credit is awarded for disclosure of new information the SEC doesn’t know. Lovely.
Meanwhile, the SEC Office of the Whistleblower now gets thousands of tips every year. It received more than 5,200 in fiscal 2018, including a notable increase in tips after the Digital Realty Trust ruling, “which may have been attributable, in part, to the ruling.” So let’s hope Congress does the right thing and fix the whistleblower fluke exposed by Digital Realty Trust. Stay tuned.