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Supreme Court Ties SEC's Hands in Whistleblower Case

By Janice G. Inman
April 01, 2018

With its February 21 decision in Digital Realty v. Somers, No. 16-1276, the U.S. Supreme Court dealt a blow to companies interested in learning of their own securities violations before the government gets the heads-up. The case's outcome means whistleblowers who might have reported violations internally will be incentivized to bypass their own companies' compliance mechanisms in favor of immediate reporting to the U.S. Securities Exchange Commission (SEC).

The Conscientious Employee

The case involved internal whistleblower Paul Somers, an employee from 2010 to 2014 of Digital Realty, a public company which operated as a real estate investment trust. As a portfolio-management vice president, Somers became aware of several areas of concern within his company. According to his complaint, Somers took these concerns — including the company's elimination of internal corporate controls in violation of the Sarbanes-Oxley Act, its hiding of millions of dollars in cost overruns, and its grant of no-bid contracts and questionable payments to friends — to management on more than one occasion, warning his superiors that they might be violating U.S. securities law. Somers was terminated from his job prior to being able to go to the SEC, allegedly because he was making trouble for the company.

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