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Dodd-Frank Act Increases Protections and Incentives for Whistleblowers


The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) includes significant new whistleblower provisions that encourage and further protect employees that report violations of securities and consumer finance law.

Section 922 of the Dodd-Frank Act establishes a new whistleblower program (the Program) for individuals that provide information to the Securities and Exchange Commission (the SEC) about securities law violations.  If a whistleblower provides original information(1) to the SEC and this information leads to a successful SEC enforcement proceeding, the Program may award to the individual providing the information between 10 percent and 30 percent of any sanction imposed over $1 million.  The Program also protects whistleblowers against retaliation by an employer because of providing information to the SEC under the Program, participating in any investigation or enforcement activity initiated by the SEC based upon the information provided, or making public disclosures that are otherwise provided by federal securities laws. 

Although the SEC must issue final regulations by April 17, 2011 to fully implement certain aspects of the Program, the whistleblower protections against retaliation, the accompanying private right of action and eligibility for whistleblower awards began immediately upon enactment of the Dodd-Frank Act.  As compared to the whistleblower provisions of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley), the Program provides greater remedies and longer filing periods than Sarbanes-Oxley, without requiring (as Sarbanes-Oxley does) that the whistleblower exhaust available administrative remedies with the Department of Labor before filing an action in federal district court to enforce the Program’s anti-retaliation protections.

Section 922 of the Dodd-Frank Act also amends the whistleblower provisions of Sarbanes-Oxley to extend the time in which whistleblowers must file claims with the Department of Labor to 180 days, and to begin this time at the later of the date on which the violation occurs or the date on which the whistleblower became aware of the securities law violation.  Also as a result of the Dodd-Frank Act, whistleblowers claiming protection under Sarbanes-Oxley are now entitled to a jury trial and companies cannot avoid litigation of Sarbanes-Oxley retaliation claims through arbitration agreements or settlement and release agreements to be signed by the whistleblower that waive anti-retaliation rights provided by Sarbanes-Oxley.

Employees of companies that provide consumer financial products or services will receive additional whistleblower protections, commencing when the Consumer Financial Protection Bureau (CFPB) receives its authority over federal consumer financial laws on July 21, 2011.  Section 1057 of the Dodd-Frank Act protects these employees from retaliation because of providing information to the CFPB or other government agency about violations of the Dodd-Frank Act’s consumer protection provisions or other law or regulation enforced by the CFPB, testifying in a proceeding or filing an action under any federal consumer financial law, or refusing to participate in an activity the employee reasonably believes violates any law subject to the CFPB’s jurisdiction.  Similar to the revised Sarbanes-Oxley provisions, companies generally cannot avoid litigation of Section 1057 retaliation claims by using pre-dispute arbitration agreements or settlement and release agreements signed by the whistleblower that waive anti-retaliation rights provided by Section 1057.

In light of these significant increases in whistleblower protections and reporting incentives, publicly-traded companies and companies that provide consumer financial products and services should: (1) ensure that proper reporting mechanisms and anti-retaliation policies are implemented, (2) consider strategies to encourage internal reporting of concerns regarding compliance with securities and consumer financial protection laws, (3) review and revise management and board of directors training programs to include information on recognizing corporate whistleblower complaints, and (4) implement policies for processing and responding to any such complaints received by company management or the board.

The foregoing is only a summary of certain of the many significant issues affecting financial institutions.  If you have any questions about the foregoing or about other financial institution issues, please direct them to your regular contact at Troutman Sanders LLP or to any of the persons listed in the sidebar to this release.

(1) “Original information” is generally defined to include information that is derived from the independent knowledge or analysis of a whistleblower, and is not otherwise known to the SEC or derived from media reports, governmental documents, or administrative hearings.