Arnold & Porter on New Whistleblower Provision

Whistleblower Incentives and Protections in the
Financial Reform Act
Employers subject to the regulations of the Securities and Exchange
Commission (SEC) and the Commodity Futures Trading Commission (CFTC)
should be aware that the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Act) was recently passed in Congress and signed by the
President on July 21, 2010. The Act will create new financial incentives and
protections for employees who disclose information about alleged violations
of commodities and securities laws that subsequently lead to successful SEC
or CFTC enforcement actions. Protections also are provided to employees of
providers of consumer financial products and services that report violations of
consumer financial protection laws and regulations. Each of these provisions
must be implemented by the SEC, the CFTC, and the newly created Consumer
Financial Protection Bureau (the Bureau) through the rulemaking process within
270 days of the enactment of the legislation.
Financial “Bounties” for Employees to Disclose Information
Spurred by the perceived failures of regulatory agencies to discover improprieties in the securities
and commodities markets, Congress sought to create a whistleblower program to incentivize
individuals to assist with government investigations. The Act would authorize the CFTC and SEC
to provide monetary rewards to whistleblowers who provide “original information” that assists in
a successful enforcement action under the Securities Act of 1933, the Securities Exchange Act
of 1934, the Investment Company Act of 1940, and the Investment Advisers Act of 1940 leading
to the recovery of greater than US$1 million in aggregate. These provisions would authorize
the agencies to pay bounties ranging, at their discretion, from a minimum of 10 percent to a
maximum of 30 percent of the total collected monetary sanctions from a corporation to any
individual or group that discloses such “original information.”
These new monetary incentives will likely increase the number of employees who report information
to the SEC or CFTC; they provide a financial award for any fruitful tips and, in combination with
the additional protections discussed in this advisory, may offset the perceived risk to employees
of filing reports that might have otherwise jeopardized their current or future employment