Articles Posted in Dodd-Frank Act Whistleblower provisions

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), whistleblowers who report violations of securities law, commodities law or the Foreign Corrupt Practices Act to the attention of the right government authorities-the SEC, DOJ or Commodities Futures Trading Commission, are entitled to between 20% to 30% of the Government’s recovery in excess of $1 million. The Securities and Exchange Commission (SEC) settled three securities cases in July 2010 worth $550 million, $100 milion and $75 million. Last year the SEC and DOJ settled three cases involving claims of corruption under the Foreign Corrupt Practices Act (FCPA) for $450 million, $300 million and $200 million. The whistleblower awards apply only to original information derived from the whistleblower’s independent knowledhe or analysis that cannot be known to the relevant government agency from any other source. The information can apply to any manner of securities violation, including insider trading, fradulent reporting, irregularities in commodities trading and violations like payment of bribes to foreign officials. Jeffrey Newman represents whistleblowers under the Dodd Frank Act AND other laws nationwide. He can be reached at Jeff@JeffNewmanLaw.com or 617-823-3217.

The Dodd-Frank Act requires the SEC and the CFTC to pay between 10 percent and 30 percent of any award received by the government to whistleblowers who voluntarily provide original information regarding a violation of securities or commodities laws leading to a government recovery. A whistleblower may only recover if the whistleblower is the original source of the allegations. Specifically, the allegation must contain information “derived from the independent knowledge of the whistleblower” that is not otherwise known to the regulatory agency and is not based exclusively on allegations or reports made by another party including both formal reports and proceedings or news reports.

Although the FCA contains a similar restriction, the Dodd-Frank Act’s definition of original source is more specific. Under the FCA, it is doubtful that, if a relator provided new analysis of information that the government already had without providing at least some new facts, the relator would qualify as an original source. The Dodd-Frank Act, on the other hand, specifically allows for a whistleblower providing new “knowledge or analysis” to qualify as an original source. The Dodd-Frank Act also expands the original source rule by providing that the claims may be partially contained in allegations already made public as long as they are not exclusively derived from the public allegations. Thus, while the government may already know some of the facts, if a whistleblower provides information that helps complete the picture, the whistleblower is still entitled to share in the recovery. Again, such an outcome would be unlikely under the FCA.

In some regards, though, the Dodd-Frank Act’s original source rule is more restrictive than that contained in the FCA. The FCA only requires that a relator be an original source if the allegations have already been made public through the news media. If the relator learned of the activity at issue from a third party but it has not been made public or known by relevant government officials, the relator may still proceed with the FCA claim. The Dodd-Frank Act, on the other hand, requires that any claim be “derived from the independent knowledge or analysis of the whistleblower.” Although the meaning of that language may be subject to varying interpretations, it is likely that a whistleblower would be denied a bounty under the Dodd-Frank Act if the allegations are based on knowledge learned solely from a third party, regardless of whether or not it was public.