Dodd-Frank Does Not Protect Internal WhistleblowersPosted: February 26, 2018
Last week the Supreme Court of the United States decided a case in favor of a company that fired a whistleblower who only reported their concerns about a potential fraud internally. The Dodd-Frank Act was built upon the Sarbanes-Oxley Act and required the SEC to set up a process for whistleblowers to report potential fraudulent activity to the SEC. It provided that the SEC will pay a portion of any fines or other monies recovered to the whistleblower. In addition, the Dodd-Frank Act had explicit language preventing whistleblowing targets from taking retaliatory measures against the whistleblower.
The Supreme Court ruled that the Dodd-Frank protections only apply if the whistleblower reports the potential fraud to the SEC. The legal protections against retaliation do not apply if the whistleblower only reported their concerns internally within the company. Many companies have internal policies against retaliation for reporting potential fraud, but the Dodd-Frank Act created an incentive to go to the SEC not just for the potential pay-off, but for the better legal protection afforded by the Act.
The Supreme Court decision should be a big concern for companies. The case makes it more likely a whistleblower will go around an internal reporting process and go straight to the SEC. The impact and repercussions of the fraud can be greater when an external regulator is doing the investigation rather than an internal party doing the work and then self-reporting to any regulators. It also puts potential whistleblowers in an even more dangerous position in trying to decide what to do.
The reality is that whistleblowers’ careers are often derailed even if no one overtly retaliates against the whistleblower. Opportunities for promotion just seem to disappear and often whistleblowers find the only way to keep their career moving is to change to a different employer. Even changing employers can be difficult if the word gets out in an industry or a geographic area about a “troublemaking” employee.
The Supreme Court stated that the wording of the Act was unambiguous that protections only applied to those reporting information to the SEC. In a strange twist, companies might want to consider asking Congress to address this issue by creating a more stringent standard on the companies themselves in order to avoid the possibility that internal whistleblower programs will be made impotent by their lack of legal protection.