Following the 2008 financial collapse, Congress established incentivized whistleblower programs similar to the qui tam provisions in the False Claims Act, creating powerful new tools for enforcing securities and commodities laws.
The Dodd-Frank Wall Street Reform and Consumer Protection Act created whistleblower programs at the Securities and Exchange Commission (SEC) and at the Commodities Futures Trading Commission (CFTC) that started in 2011, when the new regulations enforcing the law took effect.
Whistleblowers might have stopped Madoff
When the law was passed, headlines about the largest financial fraud in U.S. history were fresh. The SEC had failed to stop Bernie Madoff from running a decades-long Ponzi scheme that cost investors billions. Last month, Netflix released a docuseries that highlighted how the SEC failed to act on substantive evidence presented by Harry Markopolos that a secretive hedge fund run by Madoff promising zero risk and delivering consistent returns was actually a Ponzi scheme.
The SEC and CFTC whistleblower programs under Dodd-Frank were created to stop this kind of fraud. Eligible whistleblowers can receive between 10% to 30% of the monetary sanctions collected in actions brought against violators where the sanction is more than $1 million.
And like the False Claims Act, the SEC and CFTC whistleblower laws prohibit retaliation by employers against employees who provide information about possible violations of the securities or commodities trading laws.
The process of the Dodd-Frank whistleblower programs is different than the False Claims Act. Dodd-Frank whistleblowers, with the assistance of a whistleblower lawyer, provide confidential information to the SEC or the CFTC whistleblower office (depending on the nature of the violations being alleged).
How whistleblowers are protected
Only the whistleblower and their lawyer know that they provided information to the government. Even the federal agency investigating the allegations will not know initially who the whistleblower is.
This added layer of protection for a whistleblower helps reduce the risks for a whistleblower who may be wary of coming forward with information about what an individual or company is doing for fear of retaliation. The SEC announced this month that video game developer Activision Blizzard agreed to pay $35 million to settle allegations that included it violated an SEC whistleblower protection rule by requiring former employees to provide notice to the company if they received a request for information from SEC staff.
The SEC and CFTC programs are getting results
The SEC and CFTC whistleblower programs are working, as evidenced by the $10 billion in sanctions they recovered in fiscal year 2022 — and the rewards passed on to whistleblowers.
The CFTC, which oversees cryptocurrency, reported more than $3 billion in sanctions from all whistleblower-related actions and an increase in whistleblower tips. In its annual report, the CFTC Whistleblower Office said the majority of tips it received involved fraudulent misappropriation and solicitation involving crypto and digital assets.
The SEC recovered a record $6.9 billion in penalties and its Whistleblower Office issued approximately $229 million in 103 awards, making it the SEC’s second-highest year in terms of dollar amounts and number of awards. The SEC Whistleblower Office also received a record number of whistleblower tips.
If you believe someone has knowingly committed financial or securities fraud and you would like to learn more about or would like to be a Dodd-Frank whistleblower, the whistleblower lawyers at Keller Grover can help you. The lawyers at Keller Grover understand whistleblower laws, including provisions to protect the whistleblower, and strive to achieve the best possible results for their clients.