On July 15, 2010, Congress gave final approval of the Restoring American Financial Stability Act (H.R. 4173). President Obama is expected to sign the bill into law next week. The aim of the bill is to transform financial regulation in light of the 2008 financial crisis.
The bill contains a number of whistleblower provisions designed to increase accountability and transparency in the financial system. It encourages individuals to expose fraudulent activities in the financial services sectors. It also contains a number of protections for whistleblowers from retaliation by their employers. The following are the highlights of the main provisions of the bill related to whistleblowing.
Whistleblowing to the Securities and Exchange Commission
Section 922 of the act amends the Securities Exchange Act of 1934 by inserting a provision entitled “Securities Whistleblower Incentives and Protection.” Under this provision, SEC will be required to pay a reward to individuals who provide original information to the SEC which results in monetary sanctions exceeding $1 million. The amount of the award will be 10-30 % of the total amount of monetary sanctions. The determination of the amount of the award will be made at the discretion of the Commission. The award may be appealed to the appropriate Court of Appeals in the United States within 30 days after the Commission issues its determination.
No award shall be made to a whistleblower, however, who is convicted of a criminal violation related to the judicial or administrative action for which the whistleblower provided information or to any whistleblower who gains this information through the performance of an audit of financial statements required under the securities laws. Employees of the Department of Justice, an appropriate regulatory agency, the Public Company Accounting Oversight Board or a law enforcement organization shall not be eligible for an award either.
Section 922 also protects whistleblowers from retaliation by employers. A whistleblower who is discharged or faces other discrimination by his or her employer may bring an action for relief under this section. Relief shall include reinstatement with the same seniority status, twice the amount of back pay otherwise owed to the individual and compensation for litigation costs.
Whistleblower Protection for Financial Services Employees
Title X of the act contains a whistleblower provision that covers a broad range of employees in the financial services who suffer retaliation from their employers for disclosing unlawful conduct or refusing to participate in unlawful conduct related to the offering of a consumer financial product or service. The scope of the coverage is quite broad in that the section applies to organizations that extend credit or service or broker loans, provide real estate and financial advisory services, or provide consumer report information in connection with any decision regarding the offering or provision of a consumer financial product or service.
Section 1057 of the act provides a right of action to an employee in the financial services industry who faces retaliation from her employer for disclosing information about unlawful or fraudulent conduct related to the provision of a consumer financial product or service. The following actions are protected by the bill:
- providing information to an employer, the Bureau of Consumer Financial Protection or any State, local or Federal government agency that relates to the violation of consumer financial protections laws under the act;
- testifying in a proceeding against an employer resulting from the enforcement of consumer protection laws in the act;
- helping to initiate any proceeding of consumer financial protection laws under the act;
- objecting or refusing to participate in any activity that the employee reasonably believes to be in violation of any law subject to the jurisdiction of the Bureau of Consumer Financial Protection.
A person who believes that he or she has been discharged or otherwise discriminated against by a person in violation of this law may bring a complaint with the Secretary of Labor. The Secretary of Labor shall initiate an investigation and determine whether there is reasonable cause to believe that the complaint has merit and may also provide relief to the discharged individual. Either party may file objections to the findings and request a hearing no later than 30 days after the notification from the Secretary of Labor.
If the Secretary of Labor does not issue a final order within 210 days after the date of filing of a complaint, or within 90 days after the receipt of a written determination, the complainant may bring an action in the appropriate district court of the United States. Any person adversely affected or aggrieved by a final order may file a petition for review in the United States Court of Appeals of appropriate jurisdiction no later than 60 days after the order is issued.
Expansion of Whistleblower Protection in the Sarbanes-Oxley Act
Another relevant provision is Section 929(A) of the act, which broadens the scope of the whistleblower provision in the Sarbanes-Oxley Act of 2002, also known as the Public Company Accounting Reform and Investor Protection Act. The section amends the whistleblower provision to explicitly provide protection against retaliation to employees of a subsidiary or affiliate “whose financial information is included in the consolidated financial statements of [a publicly] traded company.” Employees at nationally recognized statistical ratings agencies, such as Moody’s and Standard & Poor’s will now have whistleblower protection.
Amendment to the Federal False Claims Act
The act amends the provision in the Federal False Claims Act that provides relief to whistleblowers who face retaliation from their employers. The amendment specifies a three (3) year deadline for bringing retaliatory discharge actions against employers. Previously, the False Claims Act had been silent on the limitations period for actions brought under this section. The U.S. Supreme Court addressed the uncertainty on this issue by declaring that the most closely analogous state limitations period should apply to this section. The bill removes all ambiguity on this issue by laying down a three year statute of limitations period for actions brought under the retaliatory provision of the False Claims Act.
In order to prevent the financial fraud and consumer exploitation that contributed to the recent financial crisis, it is essential to promote accountability in the financial system. The Restoring American Financial Stability Act recognizes that encouraging and incentivizing whistleblowing is an important step toward achieving this goal.