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New Financial Reform Law Provides Incentives for Whistleblowers

 

New Financial Reform Law Provides Incentives for WhistleblowersOn July 21 President Obama signed the new Financial Reform bill (the Dodd-Frank Act) into law.  The President claims that the new law aims to protect consumers and “‘These protections will be enforced by a new consumer watchdog with just one job: looking out for people – not big banks, not lenders, not investment houses – looking out for people as they interact with the financial system’…Mr. Obama vowed that because of the law, ‘the American people will never again be asked to foot the bill for Wall Street’s mistakes. There will be no more taxpayer-funded bailouts. Period.’”

In protecting the people, as President Obama has stated, whistleblower laws have been improved, giving people more of an incentive to report fraudulent activity and earn at least 10 percent (upwards of $100,000) of what the government recovers.  In order to bring a claim forward, the whistleblower must give the Securities and Exchange Commission (SEC) original information regarding fraud that is precise and specific.  The information must be new to the SEC, and cannot contain information derived from the media, news, a legal proceeding, a government report, etc. unless the whisteblower was directly involved.  The whisteblower must be able to provide a first-hand account of the fraudulent activity.

Prior to the new bill being signed into law, the SEC could only reward a whistleblower for providing information about insider trading.  However, the new law broadens the scope of whistleblowing to include compensation for individuals that bring forward information that leads to “‘any judicial or administrative action brought by the commission under the securities laws that results in monetary sanctions exceeding $1,000,000.’”  Since a claim must total at least $1 million, and because whistleblowers receive a mandatory minimum of 10 percent to a maximum of 30 percent of what is recovered, a whisteblower will make at least between $100,000 and $300,000 or more for higher monetary sanctions.   Before the new law, a maximum of 10 percent was allowed to be paid to the whistleblower—10 percent of the recovery is now a mandatory minimum to be paid to the whistleblower.

Since the new law aims to protect the whistleblower, negative consequences due to whistleblowing are minimized under the law.  The new law states that an employer cannot, “‘discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistle-blower in the terms and conditions of employment because of any lawful act done by the whistle-blower.’”  By providing security to the whistleblower, the government is creating larger incentives for people to shed light on fraudulent activity.

The new act may create an increase of those reporting straight to the SEC, bypassing in-house procedures about reporting questionable conduct in the workplace.

The new law will have a considerable affect on whistleblowing activity.  “‘This is very significant and will have an immediate impact,’ said Erika Kelton, a Washington lawyer who has represented whistle-blowers. ‘It will motivate knowledgeable insiders to step forward and tell the enforcement agencies what they know. It is the secret weapon in this massive bill.’”

Sources:
Henning, Peter J. “Come Blow Your Horn for the S.E.C.” The New York Times DealBook Blog. 26 July 2010. http://dealbook.blogs.nytimes.com/2010/07/26/come-blow-your-horn-to-the-s-e-c/.
Montopoli, Brian. “Obama Signs Sweeping Financial Reform Into Law.” CBSNews. 21 July 2010. http://www.cbsnews.com/8301-503544_162-20011201-503544.html.
Savage, David. “Financial reform law includes big cash incentives for whistle-blowers.” Los Angeles Times. 23 July 2010.http://www.latimes.com/business/la-fi-reform-whistleblower-20100723,0,6099636.story.

 
 
 

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