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Whistleblower Bounties Under Dodd-Frank
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) creates enormous financial incentives for employees and others to report potential corporate wrongdoing directly to the SEC or the Commodities Futures Trading Commission (“CFTC”). In fact, under Section 922 of the Act, individuals who provide “original information” to such regulators that leads to a successful enforcement action with monetary penalties exceeding $1 million will be rewarded with anywhere from 10 to 30 percent of such penalties. With SEC penalties often reaching tens of millions of dollars — at least four SEC settlements during 2010 alone resulted in over $100 million in penalties – there should be a dramatic increase in whistleblower activity and, ultimately, SEC investigations.
Not only does the Act provide whistleblowing motivation for employees equipped with knowledge of corporate wrongdoing, but nearly any individual who can produce original information – defined as information that is derived from independent knowledge or analysis that is not already known to the SEC – can receive a whistleblower’s award. Accordingly, on a going-forward basis, individuals like Harry Markopolos, the renowned Bernard Madoff whistleblower, will be eligible for compensation under the Act.
In addition to financially incentivizing whistleblowing, the Act provides employees with greater protections than had previously been established for whistleblowers under Sarbanes-Oxley. Specifically, the Act creates a private right of action in federal court for retaliation by the employer, whereas Sarbanes-Oxley requires that claims first be exhausted administratively before an action can be brought in court. Under the Act, relief awarded for retaliation may include reinstatement if the employee was terminated, two times the amount of any back pay owed to an individual, plus interest, and compensation for litigation costs including expert fees and reasonable attorneys’ fees.
In light of the new whistleblower provisions, companies and the attorneys who advise them should consider ramping up internal reporting and fraud detection programs. Detecting and addressing potential problems before they escalate has never been more important.