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More whistleblowers would be protected under bill passed by House committee

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The House Financial Services Committee last week approved a bill that would extend the anti-retaliation provisions of the Dodd-Frank Act to whistleblowers who suffer retaliation before they report possible securities violations to the Securities and Exchange Commission.

HR 2515, known as the “Whistleblower Protection Reform Act of 2019,” would overturn the Supreme Court’s decision last year in Digital Realty Trust, Inc. v. Somers, which limited protections only to those whistleblowers who reported to the SEC prior to job retaliation by their employers.

Before the Digital Realty ruling, the SEC had held the position that whistleblowers were eligible for anti-retaliation protection when reporting possible misconduct internally within a company, whether they had gone to the SEC or not.

The Digital Realty decision hinged on the definition of “whistleblower” in Section 922 of the Dodd-Frank Act, which the court decided meant only whistleblowers who report to the SEC before the retaliation occurs qualify for protection under the law. Whistleblower advocates argue that the absence of specific language providing protection to internal whistleblowers was an oversight and counter to the spirit and purpose of the Dodd-Frank Act.

“HR 2515 … essentially corrects a drafting error and effectuates Congressional intent,” said several whistleblower advocacy organizations to the committee in a letter of support for HR 2515. The signees included Taxpayers Against Fraud, the Government Accountability Project and the Project on Government Oversight.

“Whistleblowers must be protected when they make internal disclosures, or they will be discouraged from sounding the alarm in the first place,” the letter said. “We cannot afford to deter would-be whistleblowers since they serve as our eyes and ears to detect and report corporate fraud.”

“Absent a fix to Digital Realty, businesses will be deprived of the myriad benefits that flow from internal reporting,” the letter warned.

The Digital Realty decision was severely criticized last year by whistleblower advocates.

Phillips & Cohen partner Erika Kelton told The Anti-Corruption Report at the time that, “the Digital Realty ruling creates real peril for individuals who report internally without first reporting to the SEC.”

 Sean McKessy, another Phillips & Cohen partner who was the founding chief of the SEC’s Office of the Whistleblower, said that individuals who suspect a securities law violation “would be well advised to report directly to the SEC lest they forfeit fundamental anti-retaliation protections.”

The Dodd-Frank Act provides whistleblowers with important protections by prohibiting retaliation against whistleblowers via firing, demotion, harassment, discrimination or other means. Whistleblowers who suffer retaliation are empowered to sue employers for doubled back-pay, reinstatement and compensation of legal fees.

Whistleblowers are integral to maintaining corporate integrity. The information they have provided has led to SEC enforcement sanctions totaling more than $1.7 billion, including more than $901 million in disgorgements. Congress would be serving the public interest by passing HR 2515.

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