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Dodd-Frank, and the brave new world of securities and commodities whistleblowing.

Date Published
Sep 18, 2010

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. Although the primary goal of the Dodd-Frank Act was to change the framework of financial regulation in the United States in the wake of the 2008 financial crisis, it also contains a number of very important whistleblower provisions designed to encourage individuals to expose fraudulent activities in connection with financial securities and commodities. The law creates a new program through which a whistleblower may provide information relating to a violation of the securities laws to the Securities Exchange Commission (SEC). If that information leads to a successful judicial or administrative action by the Government, then the SEC is required to award the whistleblower between 10-30% of the total amount of monetary sanctions collected. The exact amount of the award within this range is determined by the SEC in its sole discretion. Furthermore, whistleblowers are only entitled to an award if the judicial or administrative action results in monetary sanctions that exceed $1,000,000.

The new SEC whistleblower program also creates an avenue for whistleblowers to report violations of the Foreign Corrupt Practices Act (FCPA). The FCPA makes it unlawful for a company, or an individual acting on a company’s behalf, to offer, give, promise to give, or authorize the giving of anything of value to any foreign official in order to obtain or retain business, or to direct business to a certain person. In addition, the FCPA requires companies whose securities are listed in the United States to satisfy certain accounting requirements. Companies must also make and keep books and records that accurately and fairly reflect corporate assets and must create and maintain an accurate set of internal accounting controls. The SEC is responsible for civil enforcement of the FCPA. Accordingly, whistleblowers may provide information relating to FCPA violations through the same program for reporting violations of the securities laws.

The Dodd-Frank Act also establishes a program for reporting fraud in connection with the sale of commodities that is analogous to the SEC’s program. Under this program, whistleblowers may disclose information relating to commodities fraud to the Commodity Futures Trading Commission (CFTC). As is the case with the SEC’s program, if the information leads to a successful judicial or administrative action, then the CFTC will award the whistleblower between 10-30% of the total amount of monetary sanctions obtained by the Government, provided that the sanctions exceed $1,000,000.

Finally, the Dodd-Frank Act includes a number of provisions designed to protect whistleblowers from retaliation by their employers. The law prohibits employers from taking any adverse employment action, or otherwise discriminating against an employee, for providing information to the SEC or CFTC. Any employee that is subjected to discrimination or retaliation has the right to file a lawsuit against his or her employer and seek reinstatement with the same seniority status, two times the amount of back pay owed the employee, and compensation for litigation costs, including attorneys’ fees. And in order to further protect whistleblowers from retaliation, the Dodd-Frank Act allows a whistleblower to anonymously submit information to the SEC or CFTC, as long as the whistleblower is represented by an attorney who submits the information on the whistleblower’s behalf. The SEC, CFTC, and any other government agency assisting the SEC or CFTC in an investigation, must then keep the information provided by the whistleblower confidential until the SEC or CFTC is required to disclose the information in connection with a public proceeding.

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