{"id":1740,"date":"2018-04-26T14:49:59","date_gmt":"2018-04-26T19:49:59","guid":{"rendered":"http:\/\/blogs.luc.edu\/compliance\/?p=1740"},"modified":"2018-04-26T14:49:59","modified_gmt":"2018-04-26T19:49:59","slug":"digital-realty-trust-implications-for-whistleblowers-and-the-compliance-department","status":"publish","type":"post","link":"https:\/\/blogs.luc.edu\/compliance\/?p=1740","title":{"rendered":"Digital Realty Trust: Implications for Whistleblowers and the Compliance Department"},"content":{"rendered":"

John Martin
\nAssociate Editor
\nLoyola University Chicago School of Law J.D. 2018<\/em><\/p>\n

In a 9-0 decision, the Supreme Court on February 22, 2018 decided Digital Realty Trust, Inc. v. Paul Somers, a case challenging the definition of a whistleblower under the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as Dodd-Frank.\u00a0 The court held<\/a> that \u201cDodd-Frank\u2019s anti-retaliation provision does not extend to an individual, like Somers, who has not reported a violation of the securities laws to the SEC [Securities and Exchange Commission].\u201d This is a narrowing of the definition of whistleblower and as such has a number of implications for companies and their compliance departments.<\/p>\n

The Decision<\/strong><\/p>\n

Under the Supreme Court decision, a potential whistleblower must report a suspected violation of securities law to the SEC first if they wish to avail themselves of the anti-retaliation protections of Dodd-Frank.\u00a0 A whistleblower can still avail themselves of the protections granted by the Sarbanes-Oxley Act of 2002, commonly referred to as \u201cSOX,\u201d but there are important distinctions between the protections offered by the two laws.<\/p>\n

First, SOX has a 180-day filing deadline for the potential whistleblower.\u00a0 Dodd Frank, on the other hand, grants a six-year window in which the whistleblower can make their claim.\u00a0 Second, SOX has an exhaustion requirement, where the would-be whistleblower must first file and administrative complaint with the Secretary of Labor through the Occupational Safety and Health Administration (\u201cOSHA\u201d).\u00a0 Dodd-Frank grants that same would-be whistleblower the ability to file directly in a U.S. District Court.<\/p>\n

Finally, and possibly most importantly for the whistleblower who faces retaliation or hardship from the start of their case to the end, the SOX grants an award of back pay while Dodd Frank grants an award of double back pay.\u00a0 These are only some of the distinctions between the two bills, but they paint a picture of possibilities to come.<\/p>\n

Compliance Perspective<\/strong><\/p>\n

In Fiscal Year 2017, the SEC had over 4,400 tips<\/a>, representing a 50% increase over Fiscal Year 2012, the first full year of reporting.\u00a0 Since 2011, the SEC has received over 23,000<\/a> tips.\u00a0 The Court\u2019s decision now makes it more appealing for a potential whistleblower to report to the SEC before reporting internally, thus leading to an increase in the number of tips to the SEC. \u00a0This is going to slow down the overall effectiveness of the SEC to pursue an individual tip from origination to conclusion, as the same amount of time and resources will have to be spread among a larger number of tips to verify and investigate them.<\/p>\n

But what does that mean for a company\u2019s compliance program, particularly one the company has invested heavily in? \u00a0It reduces use of the program.\u00a0 Companies have spent time and resources on their programs in order to encourage a safe space for reporting and engender a culture of reporting for a reason: a corporation prefers internal reporting as opposed to external.\u00a0 If the company knows about problems or activities that could rise to the level of violations before the SEC does, they have the ability to remediate the situation as well as self-disclose to the SEC.\u00a0 Without this opportunity, the effect of a problem would last longer and get worse.\u00a0 Even more concerning, penalties and fines would be higher than they would be otherwise.<\/p>\n

Now, if employees feel they want to use the protections of Dodd-Frank, they\u2019re forced to go directly to the SEC as opposed to reporting internally, and this makes a compliance officer\u2019s job that much more difficult.<\/p>\n

As noted<\/a> by Jordan Thomas, head of Labaton Sucharow LLP\u2019s SEC whistleblower practice, \u201cFor some in corporate America, this may be viewed as a victory.\u00a0 But I believe they will come to regret this decision, because sophisticated whistleblowers will now report externally first because they don\u2019t have the employment protections afforded when they report internally.\u201d<\/p>\n

Going Forward<\/strong><\/p>\n

Compliance officers and professionals have to decide how to move forward.\u00a0 Under this more detailed definition, it is in the potential whistleblower\u2019s interest to go directly to the SEC.\u00a0 This poses serious problems for an entity\u2019s compliance department.\u00a0 A lot of the money spent on building up a robust program replete with a good reporting system may now seem wasted.<\/p>\n

This perspective may be the first choice of many, but that would be selling the investment into compliance short.\u00a0 The reporting system can still be beneficial and provide value.\u00a0 This depends entirely on the culture of the company, yet another one of the ways a company\u2019s culture is crucial to its success.\u00a0 It may be easier to ensure this sort of response from employees in a smaller entity with fewer people.\u00a0 As the number of personnel increase, the percentage may decrease, increase or remain the same, but unfortunately, all it takes is one person to go to the SEC instead of reporting to the company.\u00a0 The Company then loses that ability to remediate and self-disclose.<\/p>\n

In the future, companies will need to carefully consider and analyze how they treat whistleblowers.\u00a0 The significance of engendering a culture where employees know their opinions and feelings are valued will grow as companies work to reduce the possibility of someone opting for Dodd-Frank protection.\u00a0 If a company can reduce the fear of retaliation, it will increase the likelihood that an employee will come forward internally.<\/p>\n

In that regard, the Compliance department\u2019s role just became that much more complicated.<\/p>\n","protected":false},"excerpt":{"rendered":"

In a 9-0 decision, the Supreme Court on February 22, 2018 decided Digital Realty Trust, Inc. v. Paul Somers, a case challenging the definition of a whistleblower under the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as Dodd-Frank. The court held that \u201cDodd-Frank\u2019s anti-retaliation provision does not extend to an individual, like Somers, who has not reported a violation of the securities laws to the SEC [Securities and Exchange Commission].\u201d This is a narrowing of the definition of whistleblower and as such has a number of implications for companies and their compliance departments.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[619,642,715,1690,1771,1865,2133],"class_list":["post-1740","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-digital-realty-trust","tag-dodd-frank","tag-employment","tag-regulation","tag-sarbanes-oxley","tag-sox","tag-whistleblower"],"_links":{"self":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts\/1740","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1740"}],"version-history":[{"count":0,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts\/1740\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1740"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1740"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1740"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}