When Congress was creating the U.S. Securities and Exchange Commission's program for rewarding whistleblowers, corporations pressed for a requirement that tipsters first report suspected misconduct to their employers. Without that mandate, the companies argued, insiders would go straight to the SEC and ignore the internal reporting systems in which industry had invested millions of dollars.

That requirement was not adopted, but corporations did not walk away from their lobbying push empty-handed. The SEC, since the inception of the whistleblower program in 2010, promoted internal whistleblowing, even incentivizing it by awarding higher bounties to insiders who first take their concerns to their employers.

The securities agency's messaging came despite the fact the law that created the whistleblower program—the Dodd-Frank Act—said tipsters must report “to the commission” in order to receive protections against retaliation. The SEC interpreted that language broadly to extend protections also to employees who only report misconduct internally.

Sean McKessy

The U.S. Supreme Court on Wednesday unanimously slapped down the SEC's broad view of anti-retaliation protections, ruling that Dodd-Frank's text clearly affords safeguards against reprisal only to those who contact the commission. Now, the open question for whistleblower and securities industry lawyers is how—or even whether—the SEC continues to promote internal whistleblowing in the new legal landscape.