The Dodd-Frank Wall Street Reform and Consumer Protection Act, now awaiting the President’s signature, is Congress’s answer to the call for broad reform of the nation’s financial institutions.
Among many other things, the act includes provisions designed to encourage whistleblowing and to provide enhanced protection for whistleblowers from workplace retaliation. The act allows monetary awards for whistleblowers who provide original information on securities law violations to the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC), strengthens existing whistleblower protections under the Sarbanes-Oxley Act (SOX) and the False Claims Act (FCA), and creates new whistleblower retaliation causes of action.
The act will provide powerful new incentives for whistleblowers to report apparent misconduct, including activity falling under the Foreign Corrupt Practices Act, which broadly prohibits overseas bribery. Corporate compliance officers and legal counsel should ensure that they are prepared to manage the risks associated with these new claims.
New Qui Tam Actions Under the Act
The act amends the Commodity Exchange Act to create a qui tam action for whistleblowers. This amendment provides an award to those who voluntarily provide original information to the CFTC that leads to the enforcement of an administrative or judicial action when such sanctions exceed $1 million. Such an award will range between 10 percent and 30 percent of the total monetary sanctions collected.
Similarly, the act will now require the SEC to pay a reward to individuals who provide original information to the SEC resulting in monetary sanctions exceeding $1 million. Such an award will range from 10 percent to 30 percent of the amount recouped and the exact amount of any award is subject to the discretion of the SEC.
Strengthened Existing Whistleblower Protections
The act amends SOX to broaden the scope of its coverage, lengthen the statute of limitations, and exempt SOX whistleblower claims from mandatory arbitration. The act also clarifies that the SOX anti-retaliation law applies to employees of subsidiaries of publicly traded companies, and not just employees of the parent companies.
The act also slightly amends the anti-retaliation provision of the FCA and clarifies that the statute of limitations for actions brought under Section 3730(h) is three years.
New Whistleblower Retaliation Causes of Action
In amending the Commodity Exchange Act, the act added protection for whistleblowers by prohibiting employers from retaliating against employees for any lawful acts taken by them in reporting violations of the Commodities Exchange Act. These protected activities include providing information to the CFTC and assisting in any investigation or judicial or administrative action. Any whistleblower who prevails in a retaliation action is entitled to reinstatement, back pay, litigation costs, and attorneys’ fees.
Similarly, the act creates a new private right of action for employees who experienced retaliation “because of any lawful act done by the whistleblower.” Such acts include (1) providing information to the SEC, (2) initiating, testifying or assisting in an investigation or administrative action based on such information, or (3) making disclosures required by federal law subject to the jurisdiction of the SEC. Remedies for such an action include reinstatement, double back pay with interest, litigation costs, and attorneys’ fees.
The act also creates a private right of action for financial services industry employees who suffer retaliation for disclosing information about fraudulent or unlawful conduct related to the provision of a consumer financial product or service. These provisions prohibit retaliation against an employee who has (1) provided information to her employer or government authority relating to any law subject to the jurisdiction of the newly created Bureau of Consumer Financial Protection, (2) testified or will testify relating to the enforcement of any laws subject to the bureau’s jurisdiction, (3) filed or instituted any proceeding under any federal consumer financial law, or (4) objected to participating in any activity that the employee believed to be in violation of any rule subject to the bureau’s jurisdiction.
Remedies for such retaliation include reinstatement of front pay, back pay, compensatory damages, litigation costs and attorneys fees. Similar to other retaliation statutes, Section 1057 of the act employs a burden shifting framework that is favorable to employees.
When the act becomes law, which we expect will be soon, corporations should ensure that they are prepared to handle an increase in reports of misconduct, and should have clear procedures in place for employees to report potential violations, and focused plans to investigate any alleged misconduct.
Benjamin J. Eichel