On February 21, 2018, the U.S. Supreme Court issued its long-awaited opinion in Digital Realty Trust, Inc. v. Somers[1] resolving the circuit split on whether the anti-retaliation provision of Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) protects individuals who have not reported potential securities laws violations to the U.S. Securities and Exchange Commission (“SEC”).[2] In an opinion delivered by Justice Ginsburg, with concurring opinions by Justices Sotomayor and Thomas, the Supreme Court ruled that individuals must report potential securities law violations to the SEC to avail themselves of Dodd-Frank’s anti-retaliation provision that provides a private right of action to whistleblowers. This opinion will have far-reaching implications on how public companies and SEC-registered entities structure their compliance programs, how the SEC will incorporate this opinion into its enforcement program, and how (if at all) the SEC may attempt to address this opinion in future rulemaking.[3]


As we covered in our previous alert, the case involved an anti-retaliation complaint brought by an employee, Paul Somers, who was terminated by his employer, Digital Realty Trust, Inc., for internally reporting potential securities law violations. The U.S. District Court for the Northern District of California denied Digital Realty’s motion to dismiss because the court found the statutory scheme ambiguous and deferred to the SEC’s interpretation of its implementing regulation that defines whistleblowers and prohibits retaliation.[4]

In particular, Rule 21F-2(a)(1) defines “whistleblower” as an individual who “provide(s) the Commission with information pursuant to the procedures set forth in § 240.21F-9(a) of this chapter, and the information relates to a possible violation of the Federal securities laws (including any rules or regulations thereunder) that has occurred, is ongoing, or is about to occur.”[5] That provision also sets forth anti-retaliation protections for whistleblowers that “possess a reasonable belief that the information [they] are providing relates to a possible securities law violation ... that has occurred, is ongoing, or is about to occur” and (i) provide information to the SEC, (ii) assist in an SEC investigation or enforcement action, or (iii) make any legally required disclosures.[6]

On interlocutory appeal, a divided panel of the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal while recognizing the existing circuit split on this issue between the Second and Fifth Circuits.[7] During oral argument on November 28, 2017, the Justices signaled that they were leaning towards the more restrictive view of Dodd-Frank’s anti-retaliation provision by focusing on the plain language of Dodd-Frank and questioning the SEC’s broad interpretation of it.[8]


The Supreme Court ultimately reversed the Ninth Circuit’s decision and held that the more restrictive interpretation applied on several bases.

First, the Supreme Court found that Dodd-Frank included an “explicit definition” of whistleblower that it “must follow.”[9] Specifically, § 78u-6(a)(6) of Dodd-Frank defines “whistleblower” as “any individual who provides ... information relating to a violation of the securities laws to the Commission” and indicates that this definition applies throughout the section.[10] The Supreme Court explained that, contrary to the arguments by Somers and the Solicitor General, the anti-retaliation provision does not modify this definition because that provision only “protects a whistleblower who reports misconduct both to the SEC and to another entity, but suffers retaliation because of the latter, non-SEC, disclosure.”[11] The Supreme Court noted that the Solicitor General’s argument that requiring a dual report would gut the anti-retaliation provision was contradicted by the Solicitor General’s own brief reporting that “approximately 80 percent of the whistleblowers who received awards in 2016 reported internally before reporting to the Commission.”[12] The Supreme Court also noted that the SEC is required to protect the identity of whistleblowers thereby minimizing the potential of retaliation.[13]

Second, the Supreme Court pointed to another provision of Dodd-Frank – the one providing whistleblower protection relating to the Consumer Financial Protection Bureau (“CFPB”) – for support that Congress intended this definition.[14] Unlike the SEC provision, the Supreme Court noted that the CFPB provision “imposes no requirement that information be conveyed to a government agency.”[15]

Third, the Supreme Court looked beyond Dodd-Frank’s explicit language to the SEC Whistleblower Program’s “core objective” (as recognized in the Senate Report accompanying the bill) “to motivate people who know of securities law violations to tell the SEC.”[16] The Supreme Court explained that the “award program and anti-retaliation provision ... work synchronously to motivate individuals with knowledge of illegal activity to ‘tell the SEC’” because Congress recognized that “[f]inancial inducements alone ... may be insufficient to encourage certain employees, fearful of employer retaliation, to come forward with evidence of wrongdoing.”[17]

It is important to note that there was no unanimity among the Justices on this last point. While Justices Thomas, Alito, and Gorsuch concurred in part and in the judgment in a separate opinion to the extent the decision relied on the text of Dodd-Frank, Justices Sotomayor and Breyer concurred in a separate opinion to emphasize the relevance of legislative history in interpreting both ambiguous and unambiguous statutes.


By narrowly interpreting Dodd-Frank’s anti-retaliation provision, the Digital Realty opinion changes whistleblowers’ incentives by encouraging them to report potential misconduct to the SEC instead of reporting it internally through their employers’ compliance programs. Although employees who only report internally still have anti-retaliation protections under the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), these protections are less advantageous than the ones under Dodd-Frank. For example, the Sarbanes-Oxley protections require employees to exhaust administrative remedies by filing an administrative complaint with the Secretary of Labor,[18] instead of filing a complaint in federal court under Dodd-Frank.[19] The Sarbanes-Oxley statute of limitations is 180 days,[20] which is much shorter than the Dodd-Frank six-year statute of limitations.[21] Moreover, Sarbanes-Oxley awards actual backpay with interest,[22] whereas Dodd-Frank awards double backpay with interest.[23]

In the short term, many existing Dodd-Frank anti-retaliation claims likely will be dismissed for the same reasons Somers’s claims were dismissed on appeal by the Supreme Court. While there may be a period of time when tips to the SEC ebb as potential whistleblowers recalculate this new cost-benefit structure, this period likely will be short-lived. After all, the SEC’s Whistleblower Program – having awarded more than $179 million to 50 whistleblowers as of the date of this alert[24] – presents substantial financial incentives for employees to report potential securities laws violations. These financial incentives along with the Digital Realty opinion undercut corporate compliance programs’ entreaties to report misconduct internally.

Given this, public companies and registered entities should evaluate their compliance programs, including their training modules, to ensure that they accurately reflect the Supreme Court’s interpretation of Dodd-Frank and address its bounty and anti-retaliation incentives. Although the Digital Realty opinion has changed the incentive structure, a robust compliance program emphasized by senior management can still encourage internal reporting by assuaging concerns of retaliation.