Dodd-Frank Act enhances whistleblower rewards and protections

With the adoption of the Dodd-Frank Act, financial whistleblowers gained additional incentives and protections through an amendment to the Securities Exchange Act of 1934.  Under Dodd-Frank’s Section 922, whistleblowers are now eligible for rewards between 10% and 30% of monetary sanctions exceeding $1,000,000 provided that they supply the SEC with “original information” that leads to the enforcement of the Sarbanes-Oxley Act, Foreign Corrupt Practices Act, and other US securities laws. 

As outlined in the amendment, an informant’s “original information” must be “based on the direct and independent knowledge or analysis of a whistleblower” but not information already provided to the SEC by another source or gleaned from “allegations in a judicial or administrative hearing, in a governmental report, hearing, audit, or investigation, or from the news media, unless the whistleblower is the initial source of the information.” In addition to expanding financial incentives, the amendment also prohibits employers from firing, demoting, threatening, harassing or subjecting an individual to discrimination because of protected activity. 

Employees who have experienced retaliation as a result of blowing the whistle may seek reinstatement, double back pay with interest and litigation costs including attorney’s fees; however whistleblowers must bring claims within six years after the date on which the retaliation took place or within three years after the date when facts material to the right of action are known or reasonably should have been known by the whistleblower.

Lately, questions surrounding the bill’s passage have been: Are the new incentive and protections enough to spur potential whistleblowers to share vital information about fraudulent activity? Or does it create a ‘bounty’ program that encourages employees to pass on reporting milder violations and await more serious infractions to gain larger payouts? On the whole, Dodd-Frank’s Section 922 amendment has been widely hailed as an important measure to deter companies from willfully or negligently misleading investors and to rouse corporate leadership toward a culture of openness and transparency.  The amendment might also lead a number of companies to self-report potential SEC and SOX violations so as to avoid staggering penalties from whistleblower reports.