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What Potential Whistleblowers Need to Know About the Dodd-Frank Act

Posted  July 21, 2020


History of the Dodd-Frank Whistleblower Program

This month (July 2020) marks the tenth anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

What is the Dodd-Frank Act?

Passed following the 2008 financial crisis, the Dodd-Frank Act aims to prevent fraud and abuse in the financial markets.

For whistleblowers, the Dodd-Frank Act is especially significant, as it also created the SEC Whistleblower Program and CFTC Whistleblower Program.

The Dodd-Frank Act became law in July 2010, and agency rules governing the Dodd-Frank whistleblower programs took effect in 2011. Because the Dodd-Frank Act created both the SEC and CFTC whistleblower programs, “Dodd-Frank whistleblower” is often used to refer to whistleblowers with claims under either the SEC or CFTC whistleblower programs.

The Dodd-Frank whistleblower provisions incentivize whistleblowers to report violations involving federal securities law or occurring in markets regulated by the CFTC. Monetary rewards, prohibitions on job retaliation, and confidentiality protect and compensate whistleblowers who report improper conduct.

The Securities and Exchange Commission and Commodity Futures Trading Commission were created to enforce federal securities and commodities laws, maintain fair markets, and protect investors and traders. Fraud weakens our markets, and therefore our economy, and costs investors billions of dollars per year. Dodd-Frank whistleblowers play a vital role in SEC and CFTC enforcement efforts, exposing bad actors and violations of the laws and regulations that protect investors and our financial system.

The whistleblower programs of the SEC and CFTC have been remarkably effective. In 2019, the SEC reported that wrongdoers had paid over $2 billion in monetary sanctions in enforcement matters brought with information from whistleblowers, and that it had paid nearly $400 million in whistleblower rewards. At the same time, the CFTC reported that since its inception it had paid approximately $100 million to whistleblowers allowing the agency to collect over $800 million in sanctions.

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Section 748 and 922 of the Dodd-Frank Act amended the Commodity Exchange Act and the Securities Exchange Act, respectively, to require the CFTC and SEC to pay monetary awards to eligible whistleblowers.

To obtain compensation, a whistleblower must provide “original information” to the agency; if that information leads to the recovery of more than $1 million in monetary sanctions, qualified whistleblowers are entitled to claim a share of the monetary sanctions collected – between 10 and 30%.

Whistleblowers may submit their information anonymously. Additionally, Dodd-Frank prohibits employers from retaliating against whistleblowers.

The “original information” requirement means that Dodd-Frank whistleblowers must provide information that is not publicly available, which can include information obtained as a result of the whistleblower’s independent analysis of public information. That independent analysis must reveal information not previously known to the SEC or CFTC. The whistleblower must provide the information “voluntarily,” meaning that information provided to the agency after receiving a request for that information from the government may not be found to have been voluntarily provided.

Dodd-Frank whistleblowers submit their information to the relevant agency using that agency’s “tip, complaint, or referral,” or “TCR” forms and procedures. If a Dodd-Frank whistleblower is represented by counsel, the TCR form need not disclose the whistleblower’s identity.

If whistleblower information “significantly contributes” to a government enforcement action recovering monetary sanctions of more than $1 million, the Dodd-Frank Act provides that the whistleblower – or whistleblowers – “shall” receive between 10-30% of that recovery. The whistleblower must timely apply for the whistleblower reward pursuant to applicable rules.

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Both the Dodd-Frank Act and the False Claims Act provide financial rewards to eligible whistleblowers, but they apply in very different contexts.

Types of Fraud

Whistleblowers can make reports under the Dodd-Frank whistleblower provisions if they have information about possible violation of the federal securities laws and regulations, or about any unlawful activity involving the futures markets, the options markets, and the swaps trading markets.

The range of wrongdoing is broad, covering such diverse areas as insider trading, cryptocurrency, accounting fraud, spoofing and market manipulation, misrepresentations in securities and investment offerings, data breach and cybersecurity fraud, foreign currency trading fraud, wrongdoing and mis-charging by brokers, undisclosed conflicts of interest, and violations of the Foreign Corrupt Practices Act.

The Dodd-Frank whistleblower provisions do not require commission of fraudulent activity against the government.

Whistleblowers can bring claims under the FCA to report fraud and misconduct in government contracts and government programs, including healthcare and Medicare fraud. The cornerstone of a False Claims Act case is evidence that fraud or misconduct caused the government to suffer a loss, whether because it was overcharged for a product or service, or underpaid for an obligation.

Private Right of Action

Dodd-Frank whistleblowers submit their information directly to the enforcement agencies. No lawsuit is filed, and it is entirely up the agency whether it will pursue a recovery or not. The act does not allow a whistleblower to bring a lawsuit on behalf of the government. If the government chooses not to pursue the whistleblower’s information or seek recovery, the whistleblower cannot pursue claims on behalf of the government.

By contrast, an FCA whistleblower files a qui tam lawsuit on behalf of the government. If the government decides not to pursue the whistleblower claim – if the government “declines to intervene,” a whistleblower may proceed with the action on behalf of the government. In such a “non-intervened” case, the whistleblower is entitled to a larger share of any recovery, up to 30% of the award if they successfully litigate a claim after the government has declined.

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Where Are Complaints Filed?

As said, Dodd-Frank whistleblowers submit their information directly to the relevant agency, either the SEC or the CFTC, depending on the wrongdoing involved.

While the choice of agency will usually be clear, the SEC and CFTC do have overlapping jurisdiction in some instances, or particular wrongdoings may violate both securities and commodities laws. In such a case, a whistleblower can submit to both agencies.

FCA cases, on the other hand, are commenced by the filing of a complaint, under seal, in one of 94 federal district courts. The choice of court for an FCA action is usually based on factors such as the place of wrongdoing or the location of the victim federal agency. As many frauds are nationwide, however, other factors may be relevant as well.

Multiple Whistleblowers

The Dodd-Frank Act authorizes rewards for any whistleblower who provides information that significantly contributes to the government’s recovery. Multiples whistleblowers, therefore, may be entitled to a Dodd-Frank whistleblower reward for providing information about the same underlying fraud.

The FCA’s “first-to-file” rule means that if multiple FCA cases based on the same facts are filed and pending, only the first whistleblower to file a case is entitled to proceed.

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Public Information

Publicly traded companies and other market participants make substantial public disclosures. In some cases, financial fraud may be “hiding in plain sight,” whether through mis-leading half truths or a flood of irrelevant information. Because of this, Dodd-Frank whistleblowers are expressly authorized to base their submissions on their own analysis of publicly-available information.

The FCA, by contrast, generally requires that qui tam whistleblowers must base their actions on non-public information, although whistleblowers can show that they were the original source of public information, or the government can effectively waive the public information requirement in an individual case.

Anonymous Reporting and Confidentiality

Dodd-Frank whistleblowers who are represented by counsel may submit their information and seek a whistleblower reward while remaining completely anonymous. SEC and CFTC investigations generally proceed confidentially, and the agencies take numerous steps to protect the anonymity of whistleblowers.

FCA actions are initially filed confidentially and under seal to permit the government to investigate the claims without tipping off the defendant. However, as an FCA case proceeds through intervention, litigation, trial, or settlement, the FCA whistleblower’s identity will likely be revealed.

Protections from Retaliation

The Dodd-Frank act prohibits employers from retaliating against whistleblowers, whether by terminating, demoting, suspending, threatening, or otherwise discriminating against the whistleblower.

Dodd-Frank protects whistleblowers even if the employer had no knowledge that the employee was the reporting party.

The Dodd-Frank Act protects three types of whistleblowing activities:

  1. Providing information provided to an enforcement agency;
  2. Participating in investigations or actions by enforcement agencies based upon or related to the information; and
  3. Disclosures required or protected under the Sarbanes-Oxley Act of 2002 and other relevant laws and regulations.

In 2018, the Supreme Court ruled in Digital Realty Trust, Inc. v. Somers that the anti-retaliation provisions of Section 922 of Dodd-Frank – the section that created the SEC Whistleblower Program – protected only those individuals who had made whistleblower reports to the SEC, and not to whistleblowers who only made their complaints internally. This ruling denies coverage of Dodd-Franks’ retaliation protections to internal whistleblowers, and in so doing, provides a further incentive for whistleblowers to report to the SEC under Dodd-Frank.

The FCA also prohibits retaliation against whistleblowers, and allows whistleblowers who have been retaliated against to seek double damages and other remedies.

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If you have information concerning violations of securities or commodities laws, please contact our team of experienced whistleblower attorneys. The attorneys at Constantine Cannon apply extensive knowledge and years of experience in the representation of our clients. Our whistleblower attorneys help our clients successfully expose misconduct. Our firm has obtained over $350 million in awards for our whistleblower clients.

We can explain in further detail questions about the Dodd-Frank Whistleblower Act and whistleblower case procedure. Contact us to discuss your options as a potential whistleblower.

Tagged in: CFTC Whistleblower Reward Program, Financial and Investment Fraud, Fraud in CFTC-Regulated Markets, Importance of Whistleblowers, SEC Whistleblower Reward Program, Securities Fraud, Whistleblower Answers,