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Current State of Dodd-Frank Whistleblower Provision
The whistleblower provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act is a tool designed to combat fraud. One of its most noteworthy features is the award system which authorizes eligibility to receive a portion of the monetary sanction collected as a reward. This award system functions primarily for whistleblowers that, according to the SEC, give the independent federal agency original information that contributes to a to securities law violation under the clauses listed under Section 21F, 15 U.S.C. § 78u-6. A whistleblower’s “tip” is disclosed to the SEC in a form called a TCR. A TCR can be anonymous and filed through counsel, such as our securities fraud lawyers.
According to the SEC, whistleblowers are qualified for a $1,000,000 or more in monetary sanctions and may be eligible for a reward of between 10% and 30% of the amount of the monetary sanction collected. The amount of the award is under the discretion of the U.S Securities and Exchange Commission. That said, there are avenues to appeal their decision if they do not make an award or make an award the whistleblower feels is not in line with their information and/or cooperation.
Malecki Law has represented many whistleblowers successfully to the award stage. From the original Sarbanes Oxley statute through the current Dodd Frank Act, Malecki Law has collected millions of dollars for whistleblowers and the numbers are growing exponentially. Malecki Law has a method for getting your TCR
The SEC Whistleblower Office under Jane Norberg has recently reported on awards:
Washington D.C., April 20, 2020 —
“These awards demonstrate the valuable contributions whistleblowers make to the protection of markets and investors and we encourage people to come forward with information about possible securities law violations.”
The SEC has awarded approximately $430 million to 80 individuals since issuing its first award in 2012. All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards.
With traces back to the “Lincoln Act”, also known as the Federal False Claims Act, the Dodd-Frank Act functions to identify fraud as well as maintain the integrity of the federal government and capital economy. The whistleblower’s provision encourages and motivates individuals to come forward to prevent fraud impacting the capital markets and investors in a timely manner.
Whistleblowers in New York often have varied reasons to call attention to actions they believe are violative of state or federal laws. Whether for non-monetary or monetary reasons, these individuals may be protected by the anti-retaliatory provisions of New York Labor Law § 740 (“Section 740”), the Sarbanes-Oxley Act of 2002 (“SOX”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).
Though often described as a “whistleblower law,” Section 740 provides protection from retaliation for blowing the whistle but does not provide any incentives. SOX provides both incentives as well as retaliatory protection, as does Dodd-Frank. Even those who have settled a lawsuit with a wrongdoer in a FINRA arbitration and signed a confidential settlement agreement would still likely be able to provide a whistleblower tip thanks in part to the protections outlined in Regulatory Notice 14-40.
A thriving misconception is a belief that only employees or other insiders can make an effective whistleblower. However, that could not be further from the truth. Although employees and insiders may have access to particularly useful pieces of information, investors or victims may also come across detailed intelligence that is equally as valuable. That being said, a varied group of people impacted by or related to securities fraud against the US Securities and Exchange Commission can be equipped to serve as prime candidates to file a whistleblower complaint. Under Dodd-Frank, a whistleblower does not need to be an employee, independent contractor, or related to the company in any way to blow the whistle.
Dodd-Frank’s whistleblower provision is harsher on criminals who participated in the fraud and casts a wider net in its prohibitions and exclusions. Under Dodd-Frank, “no award... shall be made... to any whistleblower who is convicted of a criminal violation related to” 15 USCS § 78u-5(c)(2)(B) securities enforcement proceeding which results in a collection of sanctions. This language is significantly broader than the IRS’s “planned and initiated” language. While the IRS seems to require an element of leadership and/or scienter, the Dodd-Frank language seems to only require involvement though it remains to be seen just how this language will be interpreted in prohibiting a whistleblower from collecting an award.
The Investor Protection Fund provides the financial backing for paying whistleblowers that step forward with legitimate claims of fraud. The Investor Protection Fund was established in order to finance awards to whistleblowers and subsidize activities of the Inspector General of the Commission. That being said, the rewards granted to whistleblowers under this provision is being funded by the Treasury of the United States delegated specifically to the workings of the SEC. Another particularity of this fund is that it allows money to be given to a whistleblower and not taken away from those impacted by fraud or a securities law violation.
The current whistleblower provision is put in place to reduce any damage to the federal capital market and loss to investors. These facets allow the current state of the whistleblower provision under Dodd-Frank to place power in the hands of the people as well as showcase financial gratitude to those who work towards preserving the protection of investors and tackle corruption.
If you have something to report, Malecki Law stands ready, willing and able to successfully help you through the process.