February 26, 2018

SCOTUS: Whistleblowers Must Go to SEC Too

Last week, in Digital Realty Trust v. Somers (US Sup. Ct.; 2/18), the US Supreme Court resolved a split between the circuits & held that in order to qualify for “whistleblower” protection under Dodd-Frank, an employee must reach out to the SEC – just blowing the whistle to an employer isn’t enough.

This Holland & Hart memo says that the case is a “mixed bag” for employers. This excerpt explains:

On the one hand, the decision is good news for employers because the ruling narrows the scope of protections available under Dodd-Frank’s anti-retaliation provisions. Dodd-Frank contains multiple plaintiff-friendly provisions – including immediate access to federal court, a generous statute of limitations (at least six years), and the opportunity to recover double back pay. Yet these benefits are now only available to a, presumably, smaller number of potential plaintiffs who actually report to the SEC.

On other hand, there are many reasons for employers to be wary of the ruling. Rather than incentivize employees to report their suspected concerns internally, today’s decision heavily encourages potential whistleblowers to report their concerns directly to the SEC – before any adverse action occurs, but also before employers have had the chance to hear, investigate, and address their potential concerns. Indeed, when an internal report does arrive, it may be safest for employers to assume that the SEC already has that same report.

The Court’s decision applies only to whistleblower status under Dodd-Frank.  Internal whistleblowers may still assert retaliation claims under Sarbanes-Oxley, which also provides significant economic downsides for companies that retaliate. We’re posting the flood of memos in our “Whistleblowers” Practice Area.

Time for BlackRock to “Stand & Deliver?”

BlackRock made a big splash last month when CEO Larry Fink called on companies to serve the greater good in addition to serving their bottom lines. Nice words – but now, this “Breaking Views” column calls on the world’s largest asset manager to back them up with its actions:

A day after the latest American mass shooting involving a military-style assault rifle, it is worth reviewing Fink’s words. BlackRock is the largest owner of shares in publicly traded manufacturers of what is arguably the most lethal consumer product of any kind. The firm’s funds hold 16 percent of Sturm Ruger, 12 percent of Vista Outdoor and around 11 percent of American Outdoor Brands, the parent of Smith & Wesson, according to Eikon.

BlackRock’s holdings are driven by its big indexing business, but it is not alone. Vanguard, which oversees $4.5 trillion of other people’s money, is the second-biggest owner of Sturm Ruger and a close third in the registers of AOB and Vista. Fidelity Management tops the roster at Vista with 15 percent, but doesn’t figure in the other two.

These increasingly engaged broad-brush investment firms, as well as more focused Wall Street advisers, could start with a simple thesis. Something common to most of the shooting horrors in recent years is the AR-15 class of semi-automatic weapons. In a country with as many firearms as people, eradicating murders, suicides and accidental deaths may never be possible. But reducing the lethality of those who would do harm is achievable by making these weapons – which were adapted from versions designed for military use on battlefields – harder to purchase or banning them outright, as some states have already done.

Denying the purveyors of assault rifles the financial means to produce and distribute them is a power that financial firms do possess. Many banks and brokers already avoid the gun industry, which scores low on most so-called ESG screens – for environmental, social and governance – in part because of the regular controversies surrounding the lethal misuse of their products.

Being pressured to weigh-in on one of the most controversial issues in American society is probably not what BlackRock had in mind when it announced its new emphasis on the need to serve the greater good – but my guess is that it’s going to get lots of input about what “the greater good” entails from here on out.  Looks like the ball’s in your court, BlackRock.

Transcript: “How to Handle Post-Deal Activism”

We have posted the transcript for our recent webcast: “How to Handle Post-Deal Activism.”

John Jenkins