Dodd-Frank’s whistleblower programs offer a monetary incentive for people to provide credible information about possible violations of the securities and commodities laws to the relevant enforcement agency. If the information leads to a successful action by the relevant agency resulting in more than $1 million in monetary sanctions levied against the party engaged in the violation, an eligible whistleblower is entitled, by law, to receive between 10% and 30% of the monetary sanctions collected in the agency action and any related action by any other regulatory or enforcement agency. The law also includes provisions to protect the whistleblower if an employer retaliates against the whistleblower for submitting a whistleblower tip.
The most important difference between the whistleblower programs created by Dodd-Frank and the False Claims Act is that a Dodd-Frank whistleblower does not file a lawsuit in court. Instead, the whistleblower submits a written report to the relevant agency to investigate the possible violations of either the securities or commodities laws. If the whistleblower has a tip about securities fraud, the relevant agency is the Securities and Exchange Commission (SEC) and the report would be made to the SEC Office of the Whistleblower. If the information relates to violations of the commodities laws, the report would be made to the Commodity Futures Trading Commission (CFTC) through its Whistleblower Program. Even though the two programs were created out of the same law, each commission has established its own rules for how it will handle tips and the whistleblower must follow the rules for the appropriate commission.
Under both programs, a person will not qualify to earn an incentive payment from any enforcement action if they do not meet Dodd-Frank’s criteria for being an “eligible whistleblower.” There are several elements to being an “eligible whistleblower.” Because the SEC and CFTC create their own rules, their interpretations of these terms may vary.
- The whistleblower may be an individual acting alone or with others. A whistleblower can also be an entity established solely for the purpose of reporting the violation(s) which may shield the identities of the person(s) behind any report. Read more about Dodd-Frank’s anonymity provisions.
- The whistleblower must be providing the information voluntarily. This requirement means that the whistleblower must come forward with the information before any governmental entity asks for it. Asking for it could be a request from a regulatory or law enforcement agency, Congress or a self-regulatory organization like FINRA. It could also be an investigation triggered by another whistleblower. Stepping forward after one of these events – even if the whistleblower has original information – would not be construed as voluntary.
- The whistleblower must provide original information. Original Information is information not already known to the relevant agency that is derived from (i) the person’s independent knowledge (information in the person’s possession that is not generally known or available to the public), or (ii) the person’s independent analysis (the person’s examination and evaluation of information that may be publicly available but which reveals information that is not generally known). Also, if the agency received the same information previously from someone else, the second person’s information will not be considered original information unless that person can show that they were the “original source” of the information.
- The whistleblower’s voluntarily-produced, original information must also lead to a successful enforcement action. If the agency opens a new examination or investigation, re-opens a previously closed investigation or pursues a new line of inquiry in connection with an ongoing investigation, and brings a successful enforcement action based at least in part on the voluntarily-produced, original information, the whistleblower will satisfy this requirement. The whistleblower might also be eligible for an award if the information relates to an ongoing examination or investigation, and it significantly contributes to the success of an enforcement action.
- Whistleblowers who want to provide tips to the relevant agency, either the SEC or CFTC, must use Form TCR. This can be done online or by mail or fax.
Once the whistleblower’s tip has been delivered to the relevant agency, it is the agency’s job to process that information. During the investigative process, the whistleblower may be entirely unaware of whatever enforcement action the government is taking. In other cases, the whistleblower may provide ongoing information to support both the agency action and any other investigation related to the information.
Because there is no single path that a successful enforcement action will take triggering an award to the Dodd-Frank whistleblower, the two whistleblower programs established unique procedures for claiming a whistleblower award. Each agency regularly posts notices of actions exceeding $1 million in sanctions on its website. Anyone who believes they are eligible for a whistleblower award relating to one of the posted enforcement actions may apply for a whistleblower award. In cases where the relevant agency has been working closely with the whistleblower and the whistleblower’s attorney, the agency may also alert the whistleblower or the whistleblower’s attorney directly about the posted enforcement notice and the time to apply for the award. Within 90 days of when the relevant agency posts the enforcement action notice, the whistleblower who seeks an award must complete and return Form WB-APP to the relevant agency. If the application for the award is untimely, the whistleblower may not recover.
After the agency receives the Form WB-APP it will ascertain first whether the applicant is an “eligible whistleblower” as set forth above. If the agency determines that the whistleblower is eligible, it will then make a determination using factors set out in the Rules implementing Dodd-Frank to calculate the amount of the award between 15% – 30%. This determination is decided on a case by case basis and depends on the facts and circumstances of what happened. The agency considers factors which may increase how much the whistleblower should receive. It also evaluates negative factors which may warrant decreasing the amount of the award.
The factors which may increase an award are:
- How valuable the information provided was to the success of any proceeding brought against wrongdoers.
- How much assistance the whistleblower (and the whistleblower’s lawyer) provided during the investigation and any successful proceeding.
- The agency’s interest in making awards to eligible whistleblowers as a way to send a message to deter future violations of the securities and/or commodities laws.
- Whether, and the extent to which, the whistleblower participated in any internal compliance systems. This may include reporting the possible securities or commodities violations through internal whistleblower, legal or compliance procedures before, or at the same time, as reporting to the agency.
The factors which may decrease an award are:
- If the whistleblower participated in, or was culpable for the securities or commodities law violation(s) that the whistleblower reported.
- If the whistleblower unreasonably delayed reporting the violation(s) to the agency.
- If the whistleblower interfered with any internal compliance and reporting systems at the sanctioned company, such as, for example, making false statements to a compliance department that hindered its efforts to investigate possible wrongdoing.
Based on all these factors, the relevant agency will then calculate the award and pay the eligible whistleblower an amount between 10% and 30% of the monetary sanctions collected in the agency or related action. This award may not be appealed. If the agency rejects the application for an award altogether, however, that rejection may be appealed to the U.S. Court of Appeals.
Preliminary reports show that whistleblowers are submitting information to these new programs. For example, in just the last two years, the SEC has received more than 6,000 tips and complaints (3,001 in Fiscal Year 2012 and 3,238 in Fiscal Year 2013). The SEC also made four whistleblowers awards in Fiscal Year 2013, including one award of more than $14 million. In that case, the information submitted by the whistleblower led to an enforcement action recovering substantial investor funds.
Whistleblower actions, even those under the new Dodd-Frank programs, are not without risk for the potential whistleblower, however. If you would like to learn more about the Dodd-Frank whistleblower programs, including the provisions for how to file anonymously, or would like to be a Dodd Frank whistleblower, the whistleblower lawyers at Keller Grover LLP can help you. The lawyers at Keller Grover understand whistleblower laws, including laws to protect the whistleblower, and strive to achieve the best possible results for their clients.