New York Attorney General Proposes Financial Frauds Whistleblower Act

The Securities and Exchange Commission has reportedly launched an investigation seeking to determine whether several companies are attempting to suppress corporate whistleblowers. The SEC recently sent letters to several undisclosed companies requesting years of nondisclosure agreements, employment contracts and other documents as part of this investigation, according to Reuters.

The 2010 Dodd-Frank Act gave the SEC the power to provide monetary awards, retaliatory protection, and confidentiality protection to individuals who voluntarily provide original information which leads to successful enforcement actions resulting in monetary sanctions over $1,000,000 – or whistleblowers. The Act further prohibits retaliation by employers against an employee who reports possible wrongdoing.

There has been a push for programs similar to the SEC’s to be enacted, and New York may become the first state to comprehensively do so. On February 26, New York Attorney General Eric T. Schneiderman announced that legislation seeking to protect whistleblowers that report illegal activity in banking, insurance, and financial services industries will be introduced in Albany. The Financial Frauds Whistleblower Act calls for a compensation system similar to that employed by the SEC – any whistleblower whose tip leads to more than $1 million in penalties or settlement proceeds would receive a reward. It would also provide confidentiality and retaliation protection to whistleblowers.

While the Financial Frauds Whistleblower Act would be the first program of its kind to apply to the financial industry in New York, the state already has a similar incentive-based program for citizens who report abuses of taxpayer funded state expenditures. Since the New York State False Claims Act program was introduced in 2010, financial recoveries in cases brought based on information from whistleblowers have paid out 80% more than cases originating from other investigations within the Taxpayer Protection Bureau.

Mr. Karam currently represents one of the original whistleblowers to file a claim under the Dodd-Frank Act, and has extensive expertise in representing whistleblowers and other witnesses to corporate fraud. For more information, please contact our office.

To see the Attorney General’s February 26 Press Release, click here.

SEC Releases Annual Whistleblower Report

In November, the Securities and Exchange Commission published its annual report to Congress on the Dodd-Frank Whistleblower Program for the 2014 fiscal year. The report outlines several important milestones that occurred in 2014. Since the inception of the whistleblower program in 2011, a total of 14 individuals have received awards for. Nine of these awards were authorized in 2014 – more than all of the other years combined. The award amounts also increased in 2014; the Report cites to one individual who received a $30 million award for information provided. The SEC was also able to provide previous whistleblowers with additional payments as additional amounts were recovered in actions they helped bring to fruition.

The Dodd-Frank Act directed the SEC to provide monetary awards, retaliatory protection, and confidentiality protection to individuals who voluntarily provide original information which leads to successful enforcement actions resulting in monetary sanctions over $1,000,000 – or whistleblowers. Awards to whistleblowers must be made in an amount of 10%-30% of the monetary sanctions collected through the action. The Act further prohibits retaliation by employers against an employee who reports possible wrongdoing based on a reasonable belief that a securities violation has occurred, is occurring, or is about to occur.

Just this year, the SEC charged a company for its retaliatory actions for the first time. An employee reported information to the SEC regarding prohibited trading activities. Upon learning of the report, the employer demoted the employee and tasked him with investigating the report he had made, without giving him access to any of the information necessary to do so. The employer agreed to settle the claims of retaliation for $2.2 million. This case is important not only because it is the first time the SEC has pursued sanctions based on retaliation, but also because it illustrates an employee does not have to be terminated to have a viable retaliation claim.

Mr. Karam currently represents one of the original whistleblowers to file a claim under the Dodd-Frank Act, and has extensive expertise in representing whistleblowers and other witnesses to corporate fraud. For more information, please contact our office.

To see the SEC’s full report, click here.