Wall Street Reform Provision Creates New Incentives for Whistleblowers

A little-noticed provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Act) creates a new “bounty” program for persons reporting securities law violations, including violations of the Foreign Corrupt Practices Act (FCPA). The legislation also provides for a new cause of action for “whistleblowers” who claim employer retaliation for engaging in protected activity.

The Act directs the Securities and Exchange Commission to pay a financial reward or bounty to persons who provide it with “original information” leading to a successful enforcement proceeding that results in “monetary sanctions” exceeding $1 million. The “bounty” consists of up to 30 percent of the recovery collected in all covered proceedings, and includes penalties, disgorgement and interest.

The $1 million threshold includes amounts recovered in civil actions by the United States attorney general, a state attorney general, an “appropriate regulatory authority,” and a “self-regulatory organization” such as the Financial Industry Regulatory Authority.

The new “prohibition against retaliation” provision prohibits employers from discriminating against a whistleblower because of any lawful act done by the whistleblower in providing information or assisting in an investigation. An employee claiming retaliation has a private right of action in federal court. Remedies include reinstatement, double back pay with interest and expert witness and attorney fees.

The information provided by the whistleblower remains secret throughout the investigative proceeding. The government, however, may share the information with various federal and state regulatory and enforcement authorities, and with a grand jury. Disclosure to the defendant does not occur until the government initiates an enforcement proceeding and the rules of discovery require it.

The “retaliation” cause of action bears some similarity to the one created under Sarbanes-Oxley (SOX) for reporting of accounting or auditing irregularities. One notable difference is that an Act whistleblower need not first notify the employer, nor file a complaint with the Occupational Safety and Health Administration and exhaust administrative remedies, before filing suit. The Act remedies are broader than those under SOX and the statute of limitations is significantly longer (six years vs. 180 days).

Since FCPA violations carry large potential monetary sanctions, the Act whistleblower provisions will have a marked impact on the enforcement landscape.

Brad Williams is senior counsel at Ice Miller. He concentrates his practice in white collar crime, grand jury proceedings, federal taxation, section 1983 litigation, proceedings before federal and state administrative agencies, legal and regulatory compliance, health care, and the False Claims Act (including qui tam litigation).

Sept. 15, 2010

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice.  The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.