The Dodd-Frank Act and Whistleblower Protections

In 2010, two years after the housing bubble burst and the stock market sank to near-record lows, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was signed into law as a way of preventing reckless financial behavior. This Act also established important new measures to encourage, reward, and protect whistleblowers who offer original insider information about financial fraud to the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission.

The law and regulations created by the two agencies dictate how a whistleblower must proceed to attempt to collect a reward for providing the government with information. If you believe you have information about financial fraud, the best way to protect your identity, safety, and financial best interests—and to find out if you have a valid case—is to contact a whistleblower attorney familiar with the protections and rewards provided by the Dodd-Frank Act. Call (202) 552-1777 for a free consultation, or learn more about False Claims Act lawyers here.

Background

For the last quarter of a century, the Federal False Claim Act has been the stalwart of whistleblower litigation—providing the legal authority that empowers whistleblowers (sometimes called “relators”) to shine a light on those who commit fraud against the government.

However, fraud comes in many forms. While the False Claims Act has been successfully used to pursue whistleblower cases when the fraud is perpetrated against the federal government (federal contractor fraud or healthcare fraud, for example), it is not easily applied to financial fraud. It does not empower or protect those who would blow the whistle on financial companies or other private institutions, such as Enron or Bernie Madoff, unless there is some financial loss to the federal government as well. A new set of laws was required to provide whistleblowers with an opportunity to report financial wrongdoing which violated securities laws which are supposed to be enforced to protect the public and investors.

Cue the Dodd–Frank Wall Street Reform and Consumer Protection Act, which includes a variety of protections for those intent on blowing the whistle on acts of financial fraud—situations in which the financial damages to the federal government aren’t as obvious.

Dodd Frank established whistleblower office at SEC

Types of Financial Fraud

Unfortunately we have seen recently that for that banks and investment firms there are many ways to defraud investors. In fact, the SEC and federal rule makers are constantly playing catch up to those who would manipulate and abuse the financial markets. Empowering whistleblowers is one way to keep the SEC more closely abreast of Wall Street fraud. Below are a few of the actions which are prohibited by the SEC and therefore may be the subject of a successful Dodd-Frank Act whistleblower action.

Of course, given the many complicated regulations that the SEC is tasked with enforcing, and the complicated nature of securities transactions, there is a wide range of behaviors that might warrant action from federal regulators if uncovered by a whistleblower.

Here are some basic examples of behaviors forbidden by SEC regulations:

  • Ponzi schemes
  • Insider trading
  • Accounting fraud
  • Unauthorized trading
  • Falsified financial statements or misleading public filings
  • Bribery
  • Market manipulation
  • Improper promotion of and/or sale of risky investments
  • Skimming funds

Whistleblower Protections Under the Dodd-Frank Act

If a whistleblower brings original insider information about financial fraud to the SEC or the Commodity Futures Trading Commission (CFTC) and the agency successfully moves forward with action against the alleged perpetrator, the whistleblower may be entitled to anywhere from 10 percent to 30 percent of the total fines levied.

With respect to whistleblowers, that legislation created essentially two new options: they created a whistleblower office at the Securities and Exchange Commission, or a whistleblower law that they could then implement in an office, and at the Commodity Futures Trading Commission. Now there are two new whistleblower acts. Both of those agencies and the Dodd-Frank legislation that created those whistleblower laws make it possible for a whistleblower to bring a case to those agencies, have those agencies pursue the case, and, if they’re successful, get a reward.

Provisions of the Dodd-Frank Act also prohibit retaliation against whistleblowers. While rewards are only offered to those who assist SEC or CFTC investigations, those who aid any of the other financial regulators, such as the Consumer Financial Protection Bureau (CFPB), are offered whistleblower retaliation protections. That means if a whistleblower is fired or demoted for unveiling a wide range of misconduct (whether by pursuing a whistleblower claim or reporting misbehavior internally) then he or she has a right to take the person or company responsible for the retaliation to court.

Whether you are a would-be whistleblower of financial fraud, or someone who has suffered negative consequences as a result of your decision to blow the whistle on financial misconduct, your best bet for determining the correct course of action is to confer with a whistleblower attorney.

Differences Between the Federal False Claims Act and Dodd-Frank

  1. Dodd-Frank whistleblowers don’t file a complaint in court: Unlike the False Claims Act, whistleblowers uncovering financial fraud must file a complaint, not in court, but with the appropriate regulatory agency.
  2. Whistleblowers can use public sources to discover financial fraud: While both the Dodd-Frank Act and the False Claims Act require whistleblower claims to be original and unique (not derived from widely available or obvious information), the Dodd-Frank Act does allow for whistleblowers to earn rewards if they analyze public information, and “connect the dots,” to uncover previously unnoticed fraud.
  3. Confidentiality: Whistleblowers bringing complaints under Dodd-Frank are entitled to anonymity, as long as they are represented by a lawyer. It is likely that, if the federal agency decides to bring a suit based on the complaint, the whistleblower’s identity will be made public. Furthermore, a whistleblower’s identity will have to be disclosed to the agency in order to receive any sort of financial reward. However, so far the agencies have been very careful NOT to disclose information about whistleblowers publicly. While we can not rule out the possibility that an agency may disclose information about a whistleblower in the future, (indeed the agencies have the right to confront the whistleblower directly about any action in which the whistleblower participates) both the CFTC and the SEC have been protective of whistleblowers’ identities since the enactment of the Dodd-Frank law and have expressed the utmost respect for whistleblowers in their actions since creating whistleblower offices.
  4. No “First to File” Rule: Under the False Claims Act, a whistleblower must be the first to file a particular whistleblower claim in court in order to be eligible for a reward. Additionally, whistleblowers who file a complaint about misconduct that the government is already in the process of investigating may be denied compensation. Under Dodd-Frank, whistleblowers that are late to join in a complaint can still benefit, as long as their provided information significantly aids the government.
  5. No Private Right of Action: When the government declines to pursue a case under the False Claims Act, the law provides the whistleblower with the right to bring the case on behalf of the government against an alleged wrongdoer. No such option is available under the Dodd-Frank Act; if the relevant federal agency decides not to go forward with the case, the whistleblower has no right to take action.