Historically, whistleblowers and the government have relied on the False claims Act as a tool to combat fraud against the government. However, there are limitations to this law, including the fact that the False Claims Act only applies to situations in which the federal government has been defrauded. Fraud that is committed against others such as people who invest in private securities does not fall under the False Claims Act. To protect others from the types of fraud that are not covered by the False Claims Act, the Dodd-Frank Act was passed. If you have knowledge of fraud against private securities investors by your company, you might want to talk to the experienced whistleblower lawyers at Swartz Swidler.
What is the Dodd-Frank Act?
The Dodd-Fank Act was passed following the burst of the subprime mortgage bubble and the subsequent collapse of the market in 2008. Congress wanted to improve the transparency and accountability of the financial system by promoting financial stability. Congress also wanted to enact protections to prevent consumers from falling victim to abusive practices by financial services companies.
Congress understood that corporate whistleblowers take on substantial risks when they report fraud that has been perpetrated by their employers. Because of this, Congress included incentives and protections in the Dodd-Frank Act for whistleblowers. The law established awards from the Securities and Exchange Commission that are designed to incentivize whistleblowing and to help people to overcome their fears of losing their jobs when they report fraud against securities investors. The incentives are in place because the government would be unlikely to discover many fraud incidents without reports from whistleblowers.
Because of this problem, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law on July 21, 2010. Within the law, several whistleblower provisions are designed to protect people who come forward and provide insider information about securities fraud to the SEC.
The SEC is a federal agency that is tasked with enforcing federal securities laws. These laws are in place to maintain a fair market and to protect investors. Despite the SEC’s diligence, securities fraud continues to cause investor losses of an estimated $40 billion each year. The Dodd-Frank Act is meant to curb these losses by working as an important tool that the SEC can use to fight fraud.
SEC provisions for whistleblowers
Before the whistleblower provisions of the Dodd-Frank Act were enacted, whistleblowers had no financial incentives or protections against workplace retaliation when they were considering reporting securities fraud. By creating the whistleblower provisions of the Dodd-Frank Act, Congress largely followed the provisions for whistleblowers that had previously been written under the False Claims Act for reports of fraud against the federal government.
Like the False Claims Act, this law authorizes the provision of financial awards for whistleblowers that report information about violations of securities law that are committed by corporations that are covered by the SEC. If a whistleblower’s report results in an enforcement lawsuit that results in penalties of more than $1 million, the whistleblower will receive from 10 to 30% of the amount that the government recovers.
Under the Dodd-Frank Act, SEC whistleblowers will have protections against retaliation by their employers when they report securities fraud. These provisions take vital steps to protect people who step forward to report securities fraud. The anti-retaliation provision of the Dodd-Frank Act prohibits employers from taking any adverse actions against whistleblowers who report securities fraud when it falls under a law, rule, or regulation that is enforced by the SEC.
Differences between the False Claims and the Dodd-Frank whistleblower provisions
There are a couple of differences between the whistleblower provisions of the False Claims Act and the Dodd-Frank Act. one key difference is that fraudulent activity does not have to be committed against the government for the whistleblower provisions of the Dodd-Frank Act to apply.
Another difference involves whether the evidence of fraud was obtained from a public source. The Dodd-Frank Act requires whistleblowers to report information that is not in the public’s knowledge. However, whistleblowers who offer unique analyses based on public information can also be rewarded. For example, if you can discover fraud by using public information or statistics, you can qualify as a whistleblower under the Dodd-Frank Act.
The Dodd-Frank Act also does not have a first-come, first-served rule. Under the False Claims Act, only the first person to report the fraud to the government stands to gain a reward. By contrast, the Dodd-Frank Act provides for rewards to every whistleblower who reports meaningful information that is helpful to the government in fighting securities fraud. It does not matter if they were not the first person to file a complaint.
Another important difference is that the Dodd-Frank Act does not require people to file civil complaints in court. Instead, whistleblowers under the Dodd-Frank Act file complaints within the appropriate agencies. Securities violations should be filed with the SEC, and commodities violations should be filed with the Commodity Futures Trading Commission or CFTC.
Under the False Claims Act, whistleblowers who report fraud against the government have a private right of action. This means that they bring lawsuits on behalf of the federal government. By contrast, the Dodd-Frank Act does not provide whistleblowers with the right to file lawsuits on behalf of the SEC or CFTC. This means that a whistleblower’s case will be terminated if the government chooses not to pursue it under the Dodd-Frank Act.
Contact Swartz Swidler for help
Deciding to come forward with information that your employer has engaged in securities fraud is not easy. The Dodd-Frank Act does offer protections against retaliation if you decide to report your employer. If the government can recover more than $1 million based on the information that you provide, you also stand to recover an award of 10% to 30%. To learn more about your options, contact Swartz Swidler to schedule a free consultation by calling 856.685.7420. You can also contact us online by completing our online contact form.