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In previous articles and postings, we have cautioned that legislative policy of the Dodd-Frank Wall Street Reform and Consumer Protection Act threatens to circumvent corporate compliance programs and drive whistleblowers having vital information outside the organization in the hope of receiving rich bounty awards. In a recent article published by Bloomberg Law Reports®, Allen Roberts discusses some of the challenges businesses subject to SEC jurisdiction need to address in the face of the SEC’s Final Rule – mindful that the plaintiffs’ bar has geared up to capitalize on new opportunities.

For more information, see Allen B. Roberts, Dodd-Frank Bounty Awards and Protections Change Whistleblower Stakes -- Will Opporunity for Personal Gain Frustrate Corporate Compliance?, Bloomberg Law Reports - Securities Law (2011) (pdf)

By David W. Garland and Allen B. Roberts

Major provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) will gain substance and vitality only with amplifying interpretive rules. On December 17 the period closed for submitting comments on rules proposed by the Securities and Exchange Commission (SEC) to implement whistleblower provisions added in a new Section 21F to the Securities Exchange Act of 1934 (Exchange Act). With the comment period having closed, and final rules expected to be implemented in the Spring of 2011, this is a good time to take account of the proposed rules regarding the statute’s anti-retaliation provisions and their potential impact on employers.   

Dodd-Frank authorizes bounty awards to eligible whistleblowers who voluntarily provide original information to the SEC about a violation of the federal securities laws leading to a successful enforcement action and resulting in a monetary sanction exceeding $1,000,000.  It is not surprising that much of the analysis and media attention generated by Dodd-Frank concerns the bases on which the SEC will make determinations about paying potentially enormous bounty awards that can range from 10% to 30% of the amount of monetary sanctions. 

Section 21F also protects whistleblowers against retaliation by their employers, with the scope of protection circumscribed by the statutory definition of a whistleblower.  Rather than providing protection equally for internal disclosures to the employer and external disclosures to authorized agencies and authorities, as is seen commonly in whistleblower statutes, Section 21F protects only certain external disclosures. It defines a whistleblower narrowly as any individual, acting alone or jointly, who provides information relating to a violation of the securities laws to the SEC in the manner prescribed by the SEC.

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In the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), Congress has crafted an array of bounty awards and whistleblower protections broadly affecting securities, commodities and futures, and consumer financial products firms and those associated with them. Although there was an opportunity to create incentives promoting internal reporting in aid of corporate compliance programs and to rationalize whistleblowing with standardized definitions, procedures and remedies, Congress went in different directions. The result is a set of whistleblower inducements that may frustrate attainment of corporate compliance objectives by driving whistleblowers outside the organization and an enigmatic patchwork of whistleblower protections laden with internal variations that must be mastered.

Into the mix of entirely new extensions of coverage by way of bounty awards and whistleblower protections, Dodd-Frank adds provisions mandating whistleblowing for nationally recognized statistical rating organizations. It also adds significant changes enabling whistleblowers to fare better under the Sarbanes-Oxley Act and the False Claims Act.

Allen B. Roberts explores the provisions and variations existing within Dodd-Frank that present compliance challenges, and a trigger for affected firms to revisit compliance policies, practices and procedures, in The Sounds of New Whistleblower Awards and Protections under the Dodd-Frank Wall Street Reform and Consumer Protection Act (pdf), originally published by Bloomberg Finance L.P. (reprinted with permission).

We continue to follow developments on Wall Street financial reform legislation and the whistleblower rights and protections that will come with its enactment. Now recast as the Dodd-Frank Wall Street Reform and Consumer Protection Act, the bill will be considered with its Conference Report (pdf).

A preview of the legislation is addressed in the interview of Allen Roberts by Bloomberg legal analyst Spencer Mazyck, now available in video, below:

A new wave of whistleblower monetary awards and protections will come to the financial services industry once the Restoring American Financial Stability Act of 2010 (RAFSA) is enacted. With final resolution of differences between House and Senate versions accomplished, both houses of Congress now will consider the conference committee bill.

Bloomberg legal analyst Spencer Mazyck has been following whistleblowing changes we are likely to see with the anticipated enactment of RAFSA. Spencer explored with me some contours and ramifications of the pending legislation during 20-minute Bloomberg podcast.

Click here to listen to the audio podcast