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.