Today, President Obama will sign the financial reform bill passed by Congress. One of the little known provisions of the law allows whistle-blowers to recover a bounty for disclosing securities violations committed by their employers. This new law may create new challenges and risks for companies operating in the US.
Historically, only the federal False Claims Act (“FCA”) allowed whistle-blowers, (called “relaters”), to receive a portion of the government’s recovery if they provided information to authorities or won a civil lawsuit brought in the name of the United States. The whistle-blower’s payment was limited to 15%-25% of the recovery. When Congress passed the Sarbanes-Oxley Act of 2002 it charged the Department of Labor with protecting whistle-blowers from retaliation. In May 2009, as part of the stimulus, Congress passed the Fraud Enforcement Recovery Act which expanded the reach of the FCA and allowed whistleblowers to access information obtained by the Department of Justice under a Civil Investigative Demand before the federal government’s Qui Tam lawsuit is unsealed. See Garvey Schubert Barer’s Legal Update, July 30, 2009.
The financial reform bill, called the Dodd Frank Act, allows that the Securities and Exchange Commission to pay 10-30% of the money received as penalties, disgorgement and interest for securities law violations. See Sec. 922 Whistlebower Protection. The prospect of a substantial monetary reward may to lead to increased claims that corporations have violated the Foreign Corrupt Practices Act (FCPA), the recent focus of government enforcement actions which have lead large settlements, fines and disgorgement orders. The substantial sums the SEC would seek for FCPA violations can provide an incentive for employees to look for potential FCPA violations even if they were not involved in the company’s overseas business activities.
To reduce the risk of whistle-blower complaints, companies should review their compliance programs and, if they have not already done so, develop policies that require employees to report suspected violations to upper management while protecting such employees from retaliation.
Tags: Dodd Frank Act, FCA, FCPA, FERA, financial reform, whistle-blowers
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