New York Securities Fraud Lawyers Blog
It takes a lot of courage to report illegal or fraudulent misconduct by one’s own employer. This is because being a whistleblower carries significant risks. Whistleblowers not only risk their current employment, but possible ongoing retaliation that can harm their industry reputation and ability to find work with employers in the future. Reporting wrongdoing can also invite significant emotional hardship and threats to one’s personal safety. So why would anybody want to be a whistleblower?
For most with a moral compass, often doing the right thing is reward enough. But there are an increasing number of laws, which now provide additional incentives – both in terms of anonymity and financial remuneration. Depending on where one lives in the United States, there are various state whistleblower laws that could apply. Federal laws tend to provide the most financial incentive, and in particular, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which was signed into law in 2010, as a measure to address the 2008 collapse of the financial services market.
Dodd-Frank was a notable expansion on pre-existing federal whistleblower laws for several reasons. The earlier Sarbanes-Oxley Act of 2002 (SOX), which was a measure in its own right to address the failings that led to the 2001 financial crisis, provides civil protections to employees (including officers or subcontractors) of a publicly traded company against any kind of retaliation by the employer. While SOX has led to multi-million-dollar financial verdicts for the whistleblower, Dodd-Frank expanded eligibility of who could become a whistleblower, from employees under SOX, to anybody. Section 78u-6(a)(6) of Dodd-Frank defines a whistleblower as follows:
The term “whistleblower” means any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.
Further, Dodd-Frank lengthened the statute of limitations to six years to bring a whistleblower claim in federal court, whereas SOX must be filed as an administrative complaint with the U.S. Department of Labor within 180 days. SOX remains good law, and whistleblowers have the option of bringing claims under either SOX or Dodd-Frank. Though Dodd-Frank claims must involve a violation of federal securities law, SOX claims are not as limited, and provide a whistleblower with retaliation protection for securities fraud, as well as violations of other areas of federal law, including mail fraud, wire fraud, bank fraud, any rule under the Securities and Exchange Commission (SEC), or any federal law relating to fraud against shareholders.
While the two acts can work well together, the addition of Dodd-Frank has effectively opened the floodgates for whistleblower claims. In addition to making our financial markets more safe and transparent, whistleblower claims have led to the SEC paying out more than $111 million in awards since the award program began in August 2011. In 2016, alone, the SEC awarded $57 million to whistleblowers.
Under Dodd-Frank, whistleblowers are paid a minimum of 10%, up to a maximum of 30%, of the money collected in any successful SEC enforcement action that nets over $1 million in sanctions. The funds are paid out of the U.S. Treasury Department’s Investor Protection Fund, which is financed by the payment of monetary fines by violators of federal securities law.
While there are many complaints submitted by whistleblowers, not all will result in payouts by the SEC. Eligibility for a whistleblower payout under Dodd-Frank requires that the information submitted to the SEC be both voluntary and original in nature (as in previously unreported by anybody else). A good attorney can help craft a whistleblower complaint to “hit the right notes” to get the attention of the SEC, and to further ensure that you do not waive your chance at an award by failing to meet its definition of “original information.” A properly submitted complaint can prompt investigations from various federal agencies, including the SEC, the Federal Bureau of Investigation (FBI), and the U.S. Attorneys Office. Given that these agencies may want to question you, it can be further helpful to have an attorney by your side to ensure that you are protected and that you do not say anything that would jeopardize an award or, worse, incriminate yourself.
Finally, waiting for a whistleblower claim to materialize into an award can take a long time. Federal agencies move at a slow and unpredictable pace in their investigations. It is thus helpful to have an attorney to guide you from the inception of a whistleblower claim, through the federal agency questioning that could follow, and to help you remain safely anonymous throughout the process.