Understanding the Dodd-Frank Whistleblower Provisions

President Obama Signs Dodd Frank Act

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Both the government and whistleblowers alike have historically relied on the False Claims Act as a primary tool to end to fraud. It is important to understand, however, that the False Claims Act does have limitations. The largest one being that it only applies to instances in which the United States government has been defrauded of money. Fraud committed against private securities investors, for example, is not covered under the False Claims Act. Looking to address this issue, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was signed into law July 2010. Contained within the Dodd-Frank Act was a set of whistleblower provisions, seeking to protect the people who bravely come forward and provide inside information to the SEC.

The Securities and Exchange Commission (SEC) enforces federal securities laws in an effort to protect investors and maintain a fair market. Even with the SEC’s diligent efforts, securities fraud continues to cost investors approximately $40 billion every year. Passed after the financial unraveling of Wall Street and to protect investors from further abuse, the Dodd-Frank Act is now a vital tool for the SEC to combat fraud.

Wall Street

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SEC Whistleblower Provisions

Until the Dodd-Frank whistleblower provisions were added, there were no financial incentives or true protection against workplace retaliation for whistleblowers looking to report alternate forms of fraud. In creating the Dodd-Frank whistleblower provisions, legislators largely followed the guidelines previously laid out within the federal False Claims Act.

Similar to the False Claims Act, the Dodd-Frank Act authorizes a financial award for whistleblowers providing information about securities violations committed by companies that are required to report to the SEC. Should an SEC whistleblower’s information result in an enforcement action that leads to a penalty of over $1 million, the whistleblower stands to share between 10 and 30 percent of the government’s total monetary recovery.

Thanks to the Dodd-Frank Act’s whistleblower provisions, SEC whistleblowers can also report instances of securities fraud knowing they are protected against employer retaliation. Again bearing a striking resemblance to the False Claims Act anti-retaliation provisions, the Dodd-Frank whistleblower provisions take important steps to protect those citizens who report securities fraud. The Act’s anti-retaliation provision prohibits “adverse action against a whistleblower arising out of disclosures protected under Sarbanes-Oxley; the Securities Exchange Act of 1934; and any other law, rule, or regulation subject to the jurisdiction of the SEC.”

Dodd Frank Infographic

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Differences Between Dodd-Frank and False Claims Act Whistleblower Provisions

The most compelling difference between the False Claims Act and the Dodd-Frank whistleblower provisions is that Dodd-Frank does not require the fraudulent activity be committed against the government. Other key differences include:

Evidence of Fraud Can be Obtained From a Public Source

While Dodd-Frank does require whistleblowers to provide information that is not publicly known, it also rewards SEC whistleblowers who provide unique analysis based completely on public information. For example, if a citizen can uncover fraud by using public statistics or information, they can qualify to become a whistleblower.

No “First Come, First Served” Rule

The Dodd-Frank Act rewards each whistleblower who provides meaningful information that assists the government in combating securities fraud, regardless of whether they were the first to file a complaint. In contrast, the False Claims Act states only the first whistleblower who files a complaint is entitled to a monetary reward.

Complaints are Not Filed in Court

Dodd-Frank whistleblowers do not file formal complaints in a federal court, but within the appropriate agency. For example, securities violations are filed with the SEC and commodities violations are filed with the CFTC.

No Private Right of Action

Finally, Dodd-Frank does not supply whistleblowers with a “private right of action.” This means whistleblowers are not allowed to bring a lawsuit on behalf of the United States government. If the government opts not to pursue a case under the Dodd-Frank Act, the whistleblower’s claim is terminated. In contrast, the False Claims Act allows whistleblowers to pursue a qui tam action if the government chooses not to intervene.

 

 

 

 

By | 2018-03-26T10:55:23+00:00 June 10th, 2013|SEC Fraud|