The Supreme Court ruled on February 21st that the protections offered by the Dodd-Frank Act to corporate whistleblowers does not cover “internal” . The Court ruled in Digital Trust Realty, Inc v. Somers that the act only covers disclosures to the SEC, not to superiors or internal compliance departments. While the full impact of this determination remains to be seen, the Securities and Exchange Commission has provided a strong argument that it will undermine the efficacy of the Dodd-Frank Act’s whistleblowing protection scheme.
The primary question at issue in Digital Trust Realty, Inc v. Somers was whether a “whistleblower” as used in Section 21F of the Securities Exchange Act of 1934, added by Dodd-Frank, includes an employee who discloses illicit activity to their corporation. Justice Ginsburg answered that question in her majority opinion with a decisive “no.” The language of the “definitions” section of the Act, she wrote, clearly defined a whistleblower as one who discloses suspicious activity to the SEC specifically.
This plain language reading of the Act clearly contradicted the SEC’s desires for how the legislative scheme should be implemented. The agency submitted an amicus curiae brief to the Court, in addition to including arguments for maintaining more extensive protections in its 2017 Annual Report to Congress. Particularly, the Report focuses on the critical role that internal compliance plays in preventing and detecting violations by working with the SEC. The potential impact of the ruling, therefore, would reach much farther than the financial and professional wellbeing of whistleblowers. The SEC, at least, believes that strict limitation of the definition of “whistleblower” would lead to less effective preventative compliance and fewer reports of violations to the agency.
The ultimate practical implications of Digital Trust Realty may very well be tempered by the fact that the Sarbanes-Oxley Act, as of 2002, does provide some protections for internal whistleblowers at publically traded companies. The Dodd-Frank Act, in contrast, also applies statutory protections to whistleblowers at the wholly owned subsidiaries of publically traded corporations. This qualification therefore is actually fairly significant, particularly where the illicit moving of money between companies is concerned. Dodd-Frank and Sarbanes-Oxley protections would still apply, however, to any disclosures that an employee of such a subsidiary might make directly to the SEC. Dodd-Frank will therefore remain expansive relative to Sarbanes-Oxley in terms of what kinds of companies are subject to anti-retaliation requirements. However, under Digital Trust Realty, the Act will not be as comprehensive in its protections as it has been since its inception in 2010.
This determination will necessarily create limitations on anti-retaliation protections for whistleblowers that will inhibit the efficacy of the Act’s legislative scheme. There are several reasons why such protections are necessary for the legislative scheme of Dodd-Frank to work, not the least of which is that internal disclosures are easier, simpler, and can result in more immediate redress. The internal disclosure of potential violations could also lead to the SEC being notified further down the line. The Supreme Court’s interpretation of Dodd-Frank might therefore reduce not only internal preventative compliance measures, but the rate at which whistleblowing occurs in general.
The most immediate solution to this problem would be nominally straightforward: a legislative amendment to the 1934 Act that would change the definition of whistleblower in 18 U.S.C. 78u-6 to include internal whistleblowing. In fact, a removal of the phrase “to the SEC” in 78u-6(a)(6) would most likely solve the problem. That small change would define “whistleblower” under the Act as anyone who provides information “relating to a violation of a securities law in a manner established, by rule or regulation, by the commission.” Removing that small phrase would give the SEC flexibility to enact rules and regulations that it sees fit, owing to its expertise, to ensure whistleblowing remains an effective means of discovering and preventing violations. The SEC would then be free from the restrictions of a narrow reading, however correct, of a single line in the U.S. code.
 Digital Realty Trust v Somers, No. 16-1276, 2018 U.S. slip op.at 2 (S. Ct. Feb. 21, 2018).
 Id. at 1.
 Id. at 2.
 Brief for the United States as Amicus Curiae Supporting Respondents, Digital Realty Trust, Inc. v. Somers, No. 16-1276, 2018 U.S. (S. Ct. Feb. 21, 2018).
 2017 SEC Ann. Rep. of the Office of the Whistleblower 7 at 22.
 18 U.S.C. 1513, 1514.
 18 U.S.C. 78o(d) (amending 18 U.S.C. 1514A to include “including any subsidiary or affiliate whose financial information is included in the consolidated financial statements of such company”).