The Dodd-Frank Act , known formally as the Dodd-Frank Wall Street Reform and Consumer Protection Act, was signed into law July 21, 2010 and is a major piece of reform legislation covering commodities and securities actions worldwide. The Act is meant primarily to promote financial stability by improving accountability and transparency in the financial system.
The Dodd-Frank Act SEC Whistleblower Program contained three major whistleblower laws:
- One covering the Commodity Exchange Act
- One covering the Consumer Financial Protection Board
- One covering the Security and Exchange Act.
Under the program, eligible whistleblowers (defined below) are entitled to an award of between 10% and 30% of the monetary sanctions collected in actions brought by the SEC and related actions brought by other regulatory and law enforcement authorities.
The whistleblower program also prohibits retaliation by employers against employees who provide the SEC with information about possible securities violations.
Qui Tam means “in the name of the king.” It refers to lawsuits brought by a private citizen (popularly called a "whistleblower"), on behalf of the United States, against a person or company who is believed to have violated the law. The major qui tam law in the United States is the False Claims Act.
The Dodd-Frank Act contained two modified qui tam provisions, covering violations of the Securities and Exchange Act, the Commodity Exchange Act and the Foreign Corrupt Practices Act.
The law permits individuals to file a complaint with the U.S. Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC), alleging that a person or company violated U.S. securities or commodities law.
Under the Dodd-Frank Act, once a complaint is filed, it is up to the SEC or CFTC to investigate the allegations. If the SEC or CFTC confirm the validity of the whistleblower’s complaint and sanction the wrongdoer for $1 million or more, the whistleblower is entitled to a monetary reward. That reward is between 10-30% of any recovery made by the SEC or CFTC. If the SEC or CFTC does not investigate the wrongdoer and/or issue a sanction of $1 million or more, the whistleblower is not entitled to any award.
Unlike the False Claims Act, in which a whistleblower can initiate a lawsuit against the wrongdoer if the United States fails to investigate or sanction the wrongdoer, the Dodd-Frank Act does not provide for a private right of action. In other words, the whistleblower cannot file his or her own lawsuit against the company, but rather must rely on the SEC or CFTC to do their jobs.
Section 15 U.S.C. § 78u-6(a)(6) of the Dodd-Frank Act defines "whistleblower" as "any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission [SEC], in a manner established, by rule or regulation, by the Commission [SEC]."
The “relator” is another word for whistleblowers. It originated in the False Claims Act whistleblower reward law signed by President Abraham Lincoln on March 2, 1863, during the Civil War. The term “relator” is the term used in the statute to identify the original source of the frauds against the government. The term “whistleblower” was not in use in 1863. Consequently, in modern whistleblower reward laws, the term “relator” is often used by the Courts and parties to signify a whistleblower.
The term "original information," as defined in Section 15 U.S.C. § 78u-6(a)(3) of the Dodd-Frank Act, means "information that is derived from the independent knowledge or analysis of a whistleblower; is not known to the Commission [SEC] from any other source, unless the whistleblower is the original source of the information; and is not exclusively derived from an allegation made in a judicial or administrative hearing, in a governmental report, hearing, audit, or investigation, or from the news media, unless the whistleblower is a source of the information.
Section 15 U.S.C. § 78u-6(a)(4) of the Dodd-Frank Act defines "monetary sanctions" as "any monies, including penalties, disgorgement, and interest, ordered to be paid; and any monies deposited into a disgorgement fund or other fund pursuant to section 308(b) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246(b)), as a result of such action or any settlement of such action."
Section 17 CFR §240.21F-4 of the SEC final rules and regulations defines a submission as voluntary, if provided "before a request, inquiry, or demand that relates to the subject matter of your submission is directed to you or anyone representing you (such as an attorney) by the Commission [SEC]; in connection with an investigation, inspection, or examination by the Public Company Accounting Oversight Board, or any self-regulatory organization; or in connection with an investigation by Congress, any other authority of the federal government, or a state Attorney General or securities regulatory authority...In addition, [a] submission will not be considered voluntary if [the whistleblower] is required to report the original information to the Commission [SEC] as a result of a pre-existing legal duty, a contractual duty that is owed to the Commission [SEC] or to one of the other authorities [listed above] or a duty that arises out of a judicial or administrative order."
15 U.S.C. § 78u-6(b)(1) of the Dodd-Frank Act gives the SEC the power to give whistleblowers who provide original information that leads to a successful SEC enforcement 10% to 30% of the monetary sanctions over $1 million.
If the SEC sanctions a company/individual at least $1 million, the “related action” provisions of the law kick in. Under the related action provisions, a whistleblower can also obtain a reward of 10%-30% on sanctions obtained by other government agencies, if these agencies relied upon the information the whistleblower provided to the SEC.
Section 15 U.S.C. § 78u-6(c)(2) of the Dodd-Frank Act excludes from the Dodd-Frank award provision:
- Any whistleblower who is, or was at the time the whistleblower acquired the original information submitted to the Commission [SEC], a member, officer, or employee of an appropriate regulatory agency; the Department of Justice; a self-regulatory organization; the Public Accounting Oversight Board; or a law enforcement organization.
- Any whistleblower who is convicted of a criminal violation related to the judicial or administrative action for which the whistleblower otherwise could receive an award under this section.
- Any whistleblower who gains the information through the performance of an audit of financial statements required under the securities laws and for whom such submission would be contrary to the requirements of section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-1).
- Any whistleblower who fails to submit information to the Commission [SEC] in such form as the Commission [SEC] may, by rule, require." NOTE: Section 17 CFR § 240.21F-8(c) of the SEC final rules and regulations contain additional disqualifications, including a disqualification of employees of foreign governments.
The National Whistleblowers Center (NWC) believes that these exclusions go beyond the statute and opposed them during the rule making proceedings. Click Here to view the NWC's letter to the SEC .
Section 15 U.S.C. § 78u-6(d)(2) of the Dodd-Frank Act reads as follows: "Any whistleblower who anonymously makes a claim for an award...shall be represented by counsel if the whistleblower anonymously submits the information upon which the claim is based. Prior to the payment of an award, a whistleblower shall disclose the identity of the whistleblower and provide other information as the Commission [SEC] may require, directly or through counsel for the whistleblower." Section 17 CFR § 240.21F-9(c) of the SEC final rules and regulations also contains their own rule of anonymity that reads very similarly to Section 15 U.S.C. § 78u-6(d)(2) of the Dodd-Frank Act as mentioned above.
The Dodd-Frank Act required the SEC to establish a Whistleblower Office. This Office contains useful information about the SEC whistleblower law. Complaints and requests for a reward must be filed with this Office. The Office has an excellent website located at https://www.sec.gov/whistleblower.
Whistleblowers can appeal the denial of an award. However, there is no appeal as to the percentage of the monetary sanction paid by the Commission. In other words, if the Commission provides you with a lower award (e.g.10%), you cannot appeal and claim you were entitled to a higher award (e.g. 30%). But if the Commission concludes that you were not a “whistleblower” entitled to an award, you can appeal the denial. Appeals must be filed within 30-days to the appropriate United States Court of Appeals.
Title 15 U.S.C. § 78u-6(h) of the Dodd-Frank Act prohibits retaliation against any employee who filed a claim for a reward under the Exchange Act and/or assists the Commission in an investigation of any such claim. Whistleblower allegations filed internally with the company are not protected under the law’s anti-retaliation provision. Thus, to ensure protection against retaliation whistleblowers should filed an official claim or compliant under the reward law. However, the Sarbanes-Oxley Act also has an anti-retaliation provision covering whistleblowers who expose violations of the Securities and Exchange Act. The SOX law does protect internal whistleblowers.
If you need additional help or want to contact an attorney, visit Resources for Locating an Attorney.
For additional information on the Dodd-Frank Act or Commodity Exchange Act whistleblower rights, please read Rules 1, 3, and 7 published in The New Whistleblower's Handbook: A Step-by-Step Guide to Doing What's Right and Protecting Yourself (Lyons Press, 2017).
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