Dodd-Frank Wall Street Reform and Consumer Protection Act:
New Whistleblower Incentives and Private Rights of Action
by
On May 25, 2011, the U.S. Securities and Exchange Commission (SEC) adopted final rules and regulations implementing new whistleblower incentive provisions and a new private right of action announced in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) enacted by Congress on July 21, 2010.
1. Whistleblower Rewards
The Dodd-Frank Act authorizes the SEC to reward "whistleblowers" (employees who report their employers' misconduct) for reporting violations of federal securities laws to the government. To be considered for an award under the new regulations, a whistleblower must:
1) Voluntarily provide the SEC;
2) With original information;
3) That leads to the successful enforcement of a federal court or administrative action;
4) In which the SEC obtains monetary sanctions totaling more than $1 million.
Individual whistleblowers may be eligible for an award of 10% to 30% of the recovery-including employees who are themselves liable for the reported securities violations, as long as they have not been criminally convicted of an offense relating to the reported violation.
2. Private Rights of Action
The Dodd-Frank Act also protects whistleblowers by providing them with a private right of action in cases where employers terminate them or retaliate against them for reporting information of possible securities law violations, whether internally or to the government. Damages available include reinstatement, double-back pay and attorneys fees.
Under the newly-issued final rules, anti-retaliation protections of the Dodd-Frank Act apply even if an actual violation of securities laws did not occur. The rules provide that "[y]ou are a whistleblower if *** the information [you provide] relates to a possible violation of federal securities laws." However, in order to avail oneself of protection from retaliation, a whistleblower must possess a "reasonable belief" that his or her employer is violating securities laws.
The SEC has defined "reasonable belief" three ways:
· Specific, credible, and timely information;
· Information related to a matter already under investigation by the SEC, but that makes a "significant contribution" to the investigation; or
· Information that was provided through an employer's internal compliance process that is subsequently reported to the SEC by the employer, and which satisfies the first or second definition.
The final rules attempt to balance employee and employer concerns by encouraging whistleblowers to come forward while also discouraging them from bypassing internal company compliance programs.
If you are a whistleblower, and you believe that you have a claim under the Dodd-Frank Act, or any other whistleblower-protection statute, you should consult with an attorney.
Click Here to Download Article
The publications available on this website are intended by McCarthy, Lebit, Crystal & Liffman Co. LPA to educate and inform our clients and the general public regarding important legal developments. These publications are not intended, nor should be construed to be legal advice. The publications provide general information and may not apply to your specific facts and circumstances. You should contact legal counsel relative to your individual circumstances. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.
