The Dodd-Frank Act was passed in response to the recent financial crisis and addresses the limitations of the False Claims Act in the private investment sector. Before Dodd-Frank, there was no financial incentive or retaliation protection for whistleblowers who exposed securities or commodities fraud. The whistleblower provisions of the Dodd-Frank Act addressed this gap in whistleblower enforcement. Among its sweeping reforms are two whistleblower provisions that went into effect in 2011: one to address violations of the securities laws and the other to address violations of the commodities laws.
Examples of Fraud Covered by Dodd-Frank
Below are just a few examples of conduct that may be covered by Dodd-Frank:
- Ponzi schemes, insider trading, accounting fraud, unauthorized trading, bribery, market manipulation
- Misleading statements or failure to make necessary statements in public filings
- Misrepresentations made in connection with sales of securities or commodities
- Improper promotion and sale of risky investments
- Skimming or other improper diversion of funds
- Illegal naked short selling
- Boiler room or “pump and dump” schemes
Similarities to False Claims Act
The Dodd-Frank whistleblower provisions are modeled after the False Claims Act. They provide whistleblowers with strict retaliation protections and awards of up to 30% of any government recovery related to the information provided by whistleblowers. As with the False Claims Act, whistleblowers who provide credible and well documented information will have better chances of success — both in encouraging government officials to investigate the fraud and in obtaining the largest possible rewards.
Significant Differences from False Claims Act
Dodd-Frank does not require that the alleged fraud be on the government. Other key differences include:
- No Complaint Filed in Court: Dodd-Frank does not require whistleblowers to file a formal complaint in federal court. Instead, they must file a complaint form with the appropriate agency: SEC for security violations; CFTC for commodities violations. These agencies have established whistleblower offices dedicated exclusively to working with whistleblowers. They have specific regulations and guidelines that whistleblowers must follow.
- Evidence of Fraud Can Come From a Public Source: Dodd-Frank generally requires that information provided by whistleblowers be original and not publicly known. However, whistleblowers may provide an original analysis of publicly available information that reveals fraud (in limited cases, a claim under the False Claims Act might also be based on public information).
- Confidentiality: Under Dodd-Frank, if represented by a whistleblower lawyer, whistleblowers can remain anonymous while providing information to the SEC or CFTC. However, if the government decides to pursue the case, the whistleblower’s identity may be disclosed and also may be disclosed before obtaining any reward following an investigation, proceeding, or settlement.
- No “First to File” Rule: Under Dodd-Frank, whistleblowers who provide information during a pre-existing government investigation can be rewarded as long as the information provided is original and useful.
- No Private Right of Action: Finally, whistleblowers cannot continue a claim privately if the government chooses not to pursue the case.