Public companies and employers may have to contend with an unlimited number of expensive securities lawsuits under the whistleblower provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which not only includes provisions for an expanded statute of limitations under which employees can sue employers for discriminatory action but also sets up a new Securities and Exchange Commission bounty program. Labor and Employment Attorney Goldsmith recently spoke about this possibility while participating in a Practicing Law Institute panel. Goldsmith also noted that Dodd-Frank extends the whistleblower protections of the 2002 Sarbanes-Oxley Act to companies’ affiliates or subsidiaries and nationally recognized statistical rating organizations’ employees.
Goldsmith contends that by enacting Dodd-Frank, Congress was showing “overt hostility” toward predispute arbitration agreements by not having them apply to whistleblower issues. He notes that while the Dodd-Frank provisions are supposed to make up for the limitations and loopholes of SOX, certain questions have arisen that have yet to be addressed.
Under section 922 of Dodd-Frank, the SEC is allowed to award whistleblowers between 10% and 30% of any penalty that above $1 million. Cases may include those brought by the Justice Department, the SEC, other federal agencies, and state attorneys general. The SEC started getting tips and complaints even before the statute was enacted.
With its new bounty program, the SEC is expected to increase its enforcement efforts. This could result in huge payments to whistleblowers, who can also receive cooperation credit if they were violators. However, former Chief Litigation Counsel Luis Mejia, who recently spoke at a DC bar event, said that he believes that Dodd-Frank’s whistleblower provision is “the most dangerous” of issues and could undermine corporate compliance programs. Rather than reporting problems internally, giving the company a chance to self-remediate or weed out old or unfounded claims, an individual might be more likely to “blow the whistle” because of the financial rewards.
Shepherd Smith Edwards & Kantas LTD LLP Founder and Stockbroker Fraud Lawyer William Shepherd had a different perspective to offer: “Regulation of Wall Street and business – or the lack of it – has obviously been a disaster over the last decade. Meanwhile the business community clamors for privatization to cure government waste and ineptness. From the birth of this nation lawsuits have been a form of privatization of government power. Why hire more police when lawyers can handle the job much more efficiently and at no cost to the taxpayers? The same is true of whistleblowers. Why use taxpayer dollars to investigate when those on the inside already understand the problem? Believe me, white collar criminals are more afraid of lawyers and whistleblowers than they are of regulators, many of whom they own! That is why they are afraid of the proposed reforms.”
According to a recent Senate report, whistleblowers can take credit for exposing 54.1% of fraud scams in public companies. Meantime, the SEC and auditors reportedly have uncovered just 4.1% of the schemes.
Related Web Resources:
Dodd-Frank Wall Street Reform and Consumer Protection Act (PDF)
Assessment of the SEC’s Bounty Program, SEC Office of Inspector General, Office of Audits
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