Big: Senators Intro Whistleblower Fix

A bipartisan group of senators has introduced legislation to undo the damage of the Digital Realty Trust decision from the Supreme Court last year, which said that employee whistleblowers must first report their allegations to the SEC if they want to claim whistleblower protections under the Dodd-Frank Act.

This legislation from the Senate follows similar legislation the House already passed in July — which means this idea now stands a much, much better chance of becoming law.

Formally known as the Whistleblower Programs Improvement Act (bill number S. 2529 if you want to track its progress), the bill extends whistleblower protections to employees who provide misconduct allegations or related information to… 

(I) a person with supervisory authority over the whistleblower at the employer of the whistleblower, if that employer is an entity registered with, or required to be registered with, the Commission, a self-regulatory organization, or a state securities commission or office performing like functions; or

(II) another individual working for the employer described in subclause (I) who the whistleblower reasonably believes has the authority to  — (aa) investigate, discover, or terminate the misconduct; or (bb) take any other action to address the misconduct.

In other words, whistleblowers will be able to approach compliance officers directly with their misconduct allegations and still feel protected by Dodd-Frank’s whistleblower protections, without needing to report their concerns to the SEC first. Hallelujah.

The bill was sponsored by Sen. Chuck Grassley, R-Iowa and chairman of the Senate Finance Committee; as well as Sens. Joni Ernst, Tammy Baldwin, and Dick Durbin. That’s a bipartisan group of powerful senators — Grassley in particular, who has long been a champion of whistleblower protection. So while nobody can be certain of any bill’s fate in the Senate until it is actually passed, prospects for this bill’s passage do look good.

“There’s no reason why those who want to report wrongdoing internally should face potential retaliation from the exact people they are reporting to,” Grassley said in a prepared statement. “Internal disclosures can be the fastest and most effective way for a company to remedy problems, prevent fraud and protect investors.”

Digital Realty & Whistleblower Madness

As we’ve said many times before on this blog, the Digital Realty Trust ruling is correct under the letter of the law, but 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 compliance professionals should all praise Washington for this one sensible step forward. 

What happens next? I don’t know, but my best guess would be that this legislation gets adopted as part of some broader package of must-pass legislation — an appropriations bill or something like that. In theory that could happen as soon as next week (the government’s new fiscal year starts on Oct. 1), but that’s mighty quick. I wouldn’t be surprised if passage happens sometime later this fall. Then comes signature by President Trump.

Either way, we’re getting there, folks. Stay tuned.