Whistleblower Law: Dodd-Frank Act
Signed into law on July 21, 2012, the Dodd-Frank Act amended the Securities Exchange Act of 1934 by adding more than 90 new provisions designed by legislators and a number of other provisions that allow for the SEC to create rules and enforce them.1 This bill was designed to completely overhaul Wall Street reform and to provide comprehensive oversight into a number of swaps marketplaces.2 Most notably, Section 21F was added, which refers to whistleblowers.3 While this section wasn’t hotly debated prior to the law’s passage, as the law begins to take shape and affect a large number of companies, this section of the law is becoming quite prevalent.4 Building upon prior acts trying to encourage whistleblower behavior and combat fraud within publicly traded companies, this act allows for the SEC to use minimal resources in order to find and prosecute large amounts of fraud.5 While this program has encouraged many companies to implement internal systems aimed at detecting and correcting fraudulent practices, whistleblowers still tend to find a number of fraudulent practices.6 Whistleblowers who expose such information are not only protected from retaliatory conduct under the law, but also have the potential to share in a stake of the money recovered from the company.7
In order to qualify as a whistleblower as defined by the Dodd-Frank Act, the individual must meet a number of requirements.8 First, the whistleblower must voluntarily provide the SEC with information.9 This means the individual must provide the information before the SEC or some other relevant government agency requests the information.10 Second, the whistleblower must provide original information.11 This means the information given is based on the individual’s person knowledge, it’s not already known to the SEC or another agency, and it wasn’t derived from some confession made after some sort of official inquiry.12 Third, the information given by the whistleblower must lead to a successful enforcement by the proper court that results in over $1 million in damages.13 In order to meet this element, there is not only a monetary requirement but the SEC also looks at whether or not the information given is credible and original.14
If the whistleblower successfully qualifies under the law, he or she is entitled not only to retaliatory protection, but also to between 10% and 30% of the funds recovered as part of the litigation, resulting in large sums for a number of whistleblowers.15 In order to determine the percentage of the funds that the whistleblower is entitled to receive, the SEC looks at a number of factors that help determine to what extent the whistleblower aided the investigation.16 Some of these factors might include significance of the information provided by the whistleblower, assistance provided by the whistleblower, culpability of the whistleblower in the prohibited actions, whether or not the whistleblower delayed in reporting the misconduct, and whether or not the whistleblower either aided or hindered the company’s internal compliance systems.17 As this list of factors suggests, even whistleblowers who are in part culpable for the prohibited action could potentially still receive an award if all other requirements are met.18
1 Implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act, U.S. SECURITIES AND EXCHANGE COMMISSION, http://www.sec.gov/spotlight/dodd-frank.shtml.
2 Quote From: CFTC Chairman Gary Gensler.
3 Matt A. Vega, Beyond Incentives: Making Corporate Whistleblowing Moral in the New Era of Dodd-Frank Act “Bounty Hunting”, CONNECTICUT LAW REVIEW, Volume 45, Issue 2.
4 Vega, supra note 3.
5 Implementing the Dodd-Frank, supra note 1.
6 Vega, supra note 3.
7 Vega, supra note 3.
8 A Closer Look at the Dodd-Frank Wall Street Reform and Consumer Protection Act, PWC REGULATORY, http://www.pwc.com/en_US/us/financial-services/regulatory-services/publications/assets/closer-look-whistleblower-program.pdf.
9 A Closer Look, supra note 8.
10 A Closer Look, supra note 8.
11 A Closer Look, supra note 8.
12 A Closer Look, supra note 8.
13 A Closer Look, supra note 8.
14 A Closer Look, supra note 8.
15 A Closer Look, supra note 8.
16 A Closer Look, supra note 8.
17 A Closer Look, supra note 8.
18 A Closer Look, supra note 8.