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US Securities and Exchange Commission

Bipartisan Group of Senators Introduces Bill to Expand Dodd-Frank Whistleblower Protections

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

By Bill Flook

A bipartisan group of senators has introduced legislation to expand Dodd-Frank Act protections for whistleblower to those who report misconduct to their employers. The introduction of S. 2529, the Whistleblower Programs Improvement Act, follows House passage of similar bill in July. PL111-203.

Republican Sens. Chuck Grassley and Joni Ernst of Iowa announced the bill on September 24, 2019, alongside Democratic Sens. Dick Durbin of Illinois and Tammy Baldwin of Wisconsin.

The bill is a direct response to the Supreme Court’s February 2018 ruling in Digital Realty Trust v. Somers, which limited the scope of the Dodd Frank anti-retaliation provisions only to whistleblowers who report directly to the SEC. The bill would extend the protections of the 2010 Wall Street reform bill to workers who first report misconduct internally.

In the unanimous ruling, the Supreme Court concluded that Paul Somers, who was fired as vice president of a data center real estate company after he reported potential violations directly to the company’s management, was not entitled to the Dodd-Frank protections because he didn’t first go to the commission. The Digital Realty decision also represented a blow to the SEC’s 2011 rules in Release No. 34-65445, Implementation of the Whistleblower Provisions of Section 21F of the Securities Exchange Act of 1934, which extended protections to workers who report wrongdoing either internally or to the SEC.

The outcome was especially important because the Dodd-Frank protections are widely seen as more favorable to whistleblowers than those of the Sarbanes-Oxley Act , which provides a parallel anti-retaliation framework for whistleblowers. The Dodd-Frank whistleblower protections offer a longer statute of limitations than those under the Sarbanes-Oxley, and provide for double back pay, as opposed to just standard back pay, among other benefits. Whistleblower claims under the Dodd-Frank Act can be brought directly to federal court, while Sarbanes-Oxley claims must first go through the Department of Labor.

Grassley has for years advocated for a more expansive interpretation of the Dodd-Frank whistleblower rules. In October 2017 he penned an animus brief before the Supreme Court arguing that “the legislative context around Dodd-Frank’s anti-retaliation provision overwhelmingly supports” the broader interpretation.

“There’s no reason why those who want to report wrongdoing internally should face potential retaliation from the exact people they are reporting to,” Grassley said in a statement on the whistleblower bill. “Internal disclosures can be the fastest and most effective way for a company to remedy problems, prevent fraud and protect investors. Our bill will ensure that those who do the right thing and report violations will be protected.”

The Dodd-Frank Act also set up a bounty program that rewards employees whose reporting leads to sanctions against a company of more than $1 million. In order to get those awards into the hands of whistleblowers more quickly, the Whistleblower Programs Improvement Act would also require the SEC issue its initial award determination within a year of the award’s application deadline.

The bill also applies to Commodity Futures Trading Commission (CFTC) whistleblowers.

Expanding the Dodd-Frank provisions following the Digital Realty ruling has garnered wide bipartisan support. In July, the House voted 410-12 to pass the Whistleblower Protection Reform Act, which would accomplish much the same goals as the Senate bill.

The House approval of the bill came over the objection of the U.S. Chamber of Commerce, which in a letter to lawmakers said it remains “concerned about the scope of some of the whistleblower protections under Dodd-Frank and whether they contribute to frivolous employment litigation as well as excessive internal reporting.”

A coalition of advocacy groups supporting whistleblowers is backing the Grassley bill. In a September 23 letter, the groups, which include the National Whistleblower Center, Public Citizen, and the Project on Government Oversight, said the measure “establishes greater parity with other modern federal whistleblower statutes and supports timely awards, among other common-sense reforms.”

This article originally appeared in Accounting & Compliance Alert, available on Checkpoint.

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