Empowering the Whistleblower
Dodd-Frank Additions to Employee Whistleblower Law
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) has strengthened the hand of whistleblowers by providing a significant financial incentive for persons with knowledge of possible violations of the federal securities laws to report them to the Securities and Exchange Commission (“SEC”), as well as by expanding the protection of several classes of whistleblowers against retaliation from their employers.
Section 922 of Dodd-Frank created Section 21F of the Securities Exchange Act of 1934 (“Exchange Act”), entitled “Securities Whistleblower Incentives and Protection,” which requires the SEC to pay an award to a whistleblower who voluntarily provides original information about violations of the federal securities laws that results in the SEC obtaining monetary sanctions of at least $1 million against a wrongdoer. The amount of the award must be a minimum of 10 percent and maximum of 30 percent of the amount collected by the SEC.
The SEC has adopted new rules under Regulation 21F which implement its whistleblower program (the “Whistleblower Program”) and explain the procedures which must be followed in order for a whistleblower to be eligible for an award.
Under the Whistleblower Program, there are certain categories of persons who will generally not be eligible for an award, such as a company’s officers, directors and compliance personnel who obtain information in connection with the company’s legal compliance process or whose principal duties involve compliance or internal auditing. That being said, some of these exclusions from award eligibility do not apply under certain circumstances, such as a case where the whistleblower has a reasonable belief that it is necessary to provide information to the SEC to prevent substantial injury to the financial interests of the company or its shareholders.
In its rules implementing the Whistleblower Program, the SEC significantly did not mandate that whistleblowers first provide information about possible federal securities law violations to the wrongdoing company’s internal compliance team before reporting them to the SEC. However, a whistleblower may first report to the company and still remain eligible for an award — even if the company subsequently provides the information to the SEC â€” if the whistleblower submits the information to the SEC within 120 days of reporting it to the company.
In addition, to ensure that a whistleblower is not penalized for following internal compliance procedures, the SEC has put in place an incentive for a whistleblower to first report to the company involved. Under the Whistleblower Program, if the company to which the whistleblower reported conducts an investigation and reports the results to the SEC, the whistleblower will benefit from all the information the company’s investigation revealed when the SEC is considering whether the whistleblower should receive an award and, if so, the amount of the award.
A whistleblower may submit anonymously, but only through an attorney, and the whistleblower will ultimately be required to reveal his or her identity to the SEC in order to collect an award. Regardless of whether the whistleblower seeks anonymity, the SEC has said that it will attempt to protect his or her identity if possible. However, in certain circumstances the SEC will be required to disclose the whistleblower’s identity, for example in a court proceeding.
Dodd-Frank also amended the Commodities Exchange Act (“CEA”) to mandate a similar whistleblower reward program for persons providing original information to the Commodity and Futures Trading Commission (“CFTC”) about violations of the CEA that lead to a successful enforcement action resulting in at least $1 million in monetary sanctions.
In addition to establishing the two awards programs, Dodd-Frank significantly increased the protection afforded to whistleblowers against retaliation by their employers. Dodd-Frank created a private right of action under both Section 21F of the Exchange Act and Section 23 of the CEA, amended the anti-retaliation provisions of the Sarbanes-Oxley Act (“SOX”) and the False Claims Act (“FCA”) to expand their reach, and established a new class of protected whistleblowers under the Consumer Fraud Protection Act (“CFPA”).
Section 21F of the Exchange Act says that employers may not in any way discriminate against a whistleblower for lawfully providing information to the SEC under the Whistleblower Program. The SEC rules implementing this section state that the whistleblower is protected as long as he or she reasonably believes at the time of reporting that the information provided relates to a possible securities law violation that is occurring, ongoing or about to occur.
If a whistleblower believes that his or her employer has wrongfully retaliated, the whistleblower may bring a private action in federal court against the employer. If the whistleblower prevails, he or she may be entitled to reinstatement, double back pay, litigation costs, expert witness fees and attorneys fees.
One of the most significant features of the Section 21F anti-retaliation provisions is the lengthy statute of limitations. A whistleblower is given up to six years after the retaliation or three years after its discovery to bring a claim, with an outside limit of 10 years after the date the retaliation occurred.
Section 748 of Dodd-Frank establishes a similar private right of action for CEA Section 23 whistleblowers who suffer retaliation as a result of providing information to the CFTC or participating in a CFTC investigation or enforcement action. However, the statute of limitations for these claims is only two years from the date of the violation, and only straight back pay may be awarded rather than double back pay.
With respect to the SOX anti-retaliation provisions, Dodd-Frank left in place the requirement that claims first go through the Department of Labor. However, Section 922(c) of Dodd-Frank lengthened the statute of limitations for a SOX retaliation claim to 180 days following the date on which the violation occurred or following the date the employee became aware of the violation. Dodd-Frank also extended whistleblower protection to employees of a public company’s consolidated subsidiaries and affiliates.
The FCA was also amended by Dodd-Frank, with Section 1079A solving a lingering and controversial issue by establishing a uniform three-year statute of limitations for retaliation claims under the FCA. In addition, Section 1079A also offers protection against associational discrimination by expanding the definition of protected conduct under the FCA to include lawful acts done by “associated others,” in addition to an employee, contractor or agent.
Finally, Section 1057 of Dodd-Frank established anti-retaliation protection for financial services employees who provide information to the newly created Bureau of Consumer Financial Protection (the “Bureau”) about fraudulent or unlawful conduct related to the offering or provision of a consumer financial product or service. Section 1057 also provides a cause of action to any employee that objects to, or refuses to participate in, any task that the he or she reasonably believes to be in violation of any law subject to the jurisdiction of the Bureau.
In order to qualify for an award or be protected by the anti-retaliation provisions included in Dodd-Frank, it is important that a whistleblower understand in detail the requirements and exceptions involved and precisely follow the established procedures. If you would like assistance in determining whether to file a whistleblower report and how to go about doing so, as well as with understanding your rights and responsibilities during the whistleblower process, feel free to contact Bess Masterson or call (866) 496-0136.