Congress Passes Major Whistleblower Reforms as Part of Wall Street Reform Bill

Posted on July 15, 2010 by Lindsey Williams

The Wall Street Reform and Consumer Protection Act (H.R. 4173) passed 60-39 by Congress today includes a number of provisions designed to protect employees who report fraud in the commodity and stock exchanges. This is one of the most important whistleblower laws ever passed.

The bill includes two qui tam provisions for Securities and Commodities whistleblowers, and three anti-retaliation provisions. It closes a major loophole in the Sarbanes-Oxley Act by covering subsidiaries of publicly traded companies. For the first time employees at "statistical rating organizations" such as Moody's and Standard & Poor's have whistleblower protection.

Although this bill is historic, it is important to note that these protections are for private employees. There is still work to be done to pass H.R. 1507, so that federal employees may also come forward to report waste, fraud and abuse without fear of retaliation.
 

The NWC has compiled the sections of this bill that pertain specifically to whistleblowers with a one-sentence summary of each (see below). Additionally, the NWC's upcoming seminar, scheduled for July 23, 2010, has been updated to include a presentation of the whistleblower provisions in the Wall Street Reform Act. To register, click here.

Section 748
23(A) - qui tam for whistleblowers under the Commodities Exchange Act

23 sub (H) - anti-retaliation provision, which permits whistleblowers to go to federal court if they are retaliated against for filing fraud claims under the Commodities Exchange Act

Section 922

21F(a) qui tam for securities fraud: new qui tam rewards and incentives for whistleblowers who blow the whistle on securities violations

21F sub (H)(1) anti-retaliation provision for employees who file qui tam claims under securities law

(H)(1)(A)(iii) anti-retaliation for employees who make disclosures under SOX, any violation of SEC art or who make protected disclosures under obstruction of justice act

Claims filed in federal court - employees entitled to double back pay

(B) statistical ratings organizations (Moody's & Standard & Poor's) now protected under SOX anti-retaliation provisions (C) SOX whistleblower protection act enhanced and amended to increase the statute of limitations, guarantee jury trials, and prohibit mandatory arbitration agreements

Section 923 - Conforming amendments

Section 924 - SEC regulations to establish special whistleblower office and impose regulations enforcing whistleblower rules. 

Section 929A - SOX anti-retaliation law is clarified to ensure subsidiaries of publicly traded companies are fully protected under the whistleblower protection law

Section 966 - Federal employees are losers under the Act and regulators obtain no protections except a glorified "suggestion box"

Section 1057 - New whistleblower protection for employees who make disclosures to the newly created consumer protection board

Section 1079B - Amends the False Claims Act anti-retaliation law to provide for universal national 3 year statute of limitations to file wrongful discharge claims under the False Claims Act.





*Meryl Grenadier (NWC Fellow) drafted this post.

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Wall Street Reform Bill Includes Whistleblower Protections

Posted on June 28, 2010 by Lindsey Williams

The Wall Street Reform bill, recently reported out of conference, includes a number of provisions designed to protect employees who report fraud in the commodity and stock exchanges.  The bill includes two qui tam provisions that protect whistleblowers who disclose “original information” concerning major fraud.

The bill overturns judicial precedents under the Sarbanes-Oxley Act that restricted jury trials and exempted subsidiaries. For the first time employees at “nationally recognized” “statistical rating organizations” such as Moody’s and Standard & Poor’s, have whistleblower protection.

Stephen M. Kohn, Executive Director of the National Whistleblowers Center, said, “This is a major step forward in policing overt fraud and abuse in the financial services and the commodity and stock exchanges. It places brokers, traders, and bankers in a position to report fraud, keep the markets honest, and save investors hundreds of billions of dollars.”

Lindsey M. Williams, Director of Advocacy and Development at the National Whistleblowers Center, said, “Congress recognizes the critical role employees play in the detection and enforcement of anti-fraud laws by including these provisions. Employees are the number one source of fraud detection according to numerous studies, including one by the University of Chicago Booth School of Business.”

For the full conference report of the Dodd-Frank Wall Street Reform and Consumer Protection Bill, and the sections that pertain to whistleblowers, click here. 

The NWC urges members of the public to send a letter to their representatives in Congress, to ensure that the whistleblower provisions in this bill remain intact and become law. To take action, click here.



*Meryl Grenadier (NWC fellow) drafted this post
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Financial reform bill could increase detection of corruption

Posted on May 3, 2010 by Richard Renner

Business Ethics magazine is reporting on the anticipation of corporate lawyers for more work in defending corruption cases.  In an article yesterday, Michael Connor writes about a whistleblower reward provision in the current draft of the financial reform bill. The bill would guarantee a reward of up to 30% for whistleblowers who provide original information about violations to the Securities and Exchange Commission (SEC). This reward program will be similar to the provisions of the False Claims Act (FCA) which brings billions of dollars back to the U.S. treasury every year through disclosures made by whistleblowers. (See page 9 of the linked report.) Connor says that if the financial reform bill passes with the current whistleblower provision, it would lead to increased detection of violations of the Foreign Corrupt Practices Act (FCPA) which provides penalties for U.S. companies that engage in bribery. Connor cites reports by corporate defense firms Morgan Lewis and Latham & Watkins indicating that the nature of enforcement is likely to change with the whistleblower reward.  Instead of raising disclosures internally, whistleblowers will be more likely to file disclosures with the SEC in hopes of securing a reward for the first to disclose original information.  Company managers are then more likely to learn about the allegation from the SEC rather than from a company hotline. The whistleblower could actually be competing with company management to see who can make the first disclosure and reap the statutory reward. One way company managers could keep whistleblowers reporting internally would be to demonstrate that company management will not tolerate any retaliation against whistleblowers. It would be nice of companies had such an incentive.

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