Financial Services Whistleblowers - Dodd Frank
In recent years financial corruption and crises have led to more regulation of corporations and the financial industry. Sarbanes-Oxley and Dodd-Frank impose various financial reporting obligations on publicly traded companies. These Acts also protect, and even reward, whistleblowers (employees who report their employers’ violations of the law). Employees often fail to report the wrongdoing of their employers because they fear retaliation for whistleblowing. These laws –Sarbanes-Oxley, Dodd-Frank, — and many others — have anti-retaliation provisions to encourage whistleblowing with respect to corporate and financial laws. Read below for more information about corporate whistleblower and retaliation protections.
In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) was enacted to restore responsibility and accountability in our financial system. It provides several opportunities for corporate whistleblowers. The act created an award program through the Securities Exchange Commission (SEC) which provides rewards up to 30% and not less than 10% of funds recovered for information provided by whistleblowers. The SEC created a whistleblower program which enables the SEC to pay an award to whistleblowers whom voluntarily provide original information about violations of federal security laws in writing, and which lead to successful actions resulting in monetary sanctions over $1 million. To avoid losing an opportunity for a reward, you should consult an experienced whistleblower attorney before you blow the whistle.
As recently as March, 2022, the SEC awarded $14 million to a whistleblower who shed light on ongoing fraud by posting a report online. Although such high awards are rare, it is best to consult with an attorney experienced with whistleblowing to avoid losing an opportunity for a reward if you plan to blow the whistle. See workplacefairness.org for information on how to find an attorney that can help you.
The best source of information about what a company is actually doing or not doing is often its own employees, Dodd-Frank ensures that an employee can provide such information without losing his job or otherwise suffering economically from retribution from the employer. Both laws protect employees who call legal authorities, refuse to follow illegal orders, object to supervisors about violations and associate with those who blow the whistle. Dodd-Frank prohibits retaliation against any individual who provides information to the SEC relating to any regulation within the SEC’s jurisdiction as well as anyone who participates in an investigation around such matters. These laws are meant to protect employees who expose corporate fraud including: insider trading, money laundering, accounting fraud, broker-dealer violations and any violation of the Foreign Corrupt Practices Act. Dodd-Frank also permits civil causes of action in wrongful termination, suspension, harassment or other discrimination because the whistleblower engages in protected activity of reporting information to the SEC.
When used, these laws have been effective in protecting employees who expose corporate fraud.
Congress has used similar procedures to protect truck drivers, nuclear plant employees and airline workers. Workers in these industries who take a stand for the law and suffer retaliation should consider whether to file a complaint with the Occupational Safety and Health Administration (OSHA).
Dodd-Frank protects employees in any company that deals with or is a part of the financial services industry who are retaliated against for disclosing information concerning fraudulent or unlawful conduct relating to a consumer financial product or service. The financial services industry is defined to includes organizations that extend credit, service or broker loans, organizations that provide financial advising services and organizations that provide credit counseling or consumer reporting information. Sarbanes-Oxley also protects many Dodd-Frank whistleblowers.
The Department of Labor and the courts interpret “protected activity” broadly. “Protected activity” describes the actions an employee can take and be protected by the law from retaliation. Telling your boss about something you believe to be a violation can be protected activity. Calling the SEC is also protected activity. If you were fired for calling the SEC for example, you must file a complaint with the SEC to reserve your right to an unlawful retaliation claim. Dodd-Frank extends protections to employees, contractors, agents, and similar associates. They are protected for making complaints so long as they had a “reasonable” basis for believing a violation occurred.
The Dodd-Frank Act protects three types of whistleblowing:
- Making a complaint to the SEC
- Initiating, testifying in, or assisting in any SEC investigation, regardless of whether you made the initial complaint
- Reporting anything required or protected under the Sarbanes-Oxley Act, the Securities Exchange Act, or any other law or regulation involving the SEC
Protection under the Dodd-Frank may begin as soon as evidence suggests management knew of any of these actions. An employer’s investigation or interrogation of an employ may be sufficient. See the law for more information.
Whistleblowers are encouraged to create a paper trail so they may more easily prove their employer’s awareness of their protected actions. This includes notifying the employer directly in some written means that records the date; Certified mail, email, and faxes can all serve as evidence. See the law for more information.
Yes, if you get into an argument with a supervisor about what is or is not legal on the job, and you punch the supervisor, you are not protected from being fired for punching the supervisor.
The Secretary of Labor has recognized that protected activity may be associated with “impulsive behavior.” Employees cannot be disciplined for protected activity so long as it “is lawful and the character of the conduct is not indefensible in its context.” A key inquiry is whether the employee has upset the balance that must be maintained between protected activity and ship discipline. If the employee’s behavior oversteps the defensible bounds of conduct, the employee can lose the protections of the law. For example, one employee lost protection after swearing at a supervisor, refusing to change their conduct, and daring the employer to fire the employee.
The victim of mistaken identification as a whistleblower has just as much right to a remedy as the real whistleblower. Otherwise, an employer can chill employee reporting by firing every tenth employee whenever a thought of whistleblowing appears. A complainant only needs to show that the employer thought the employee engaged in protected activity when the respondent decided on the retaliation.
Any action that materially affects the value of your job is an adverse employment action. A discharge is clearly adverse. A demotion, cut in pay, denial of promotion (if someone else gets that promotion), or denial of benefits would also be considered adverse. The Department of Labor will also recognize a claim against a “hostile work environment,” although courts still disagree about what employer actions would make the workplace sufficiently “hostile.” Other employer actions that have been held to be adverse and therefore against the law, include a refusal to hire or rehire, blacklisting, reduction in work hours, reassigning work, transfer, denial of overtime, assignment to undesirable shifts, reprimands, threats to discharge or blacklist, providing unfavorable reference, damaging financial credit, close supervision, unpleasant assignments, eviction from company housing, and a sudden drop in evaluation scores after the protected activity.
Causation can be proved either by direct evidence or by an inference.
Direct evidence is evidence that the employer was mad about the protected activity. If you or another witness saw a supervisor spout off about someone reporting a violation, that is direct evidence of the employer’s “animus” against protected activity. Similarly, if the employer announces that whoever calls the SEC will be fired, or warns employees against reporting violations, that is direct evidence of retaliation.
However, the Department of Labor recognizes that most employers are smart enough to suppress direct admissions of their motives. So, the Department can find causation based on inferences. For example, if the worker calls the SEC, and you can prove that the employer had an idea about who called, and that worker is fired shortly thereafter, the timing can support an inference that the protected activity caused the discharge. The timing can support an inference of retaliation when it is as long as six months or a year from the employer’s discovery of the protected activity.
An inference of causation can also be drawn from an employer’s failure to follow normal procedures, use of false evidence, changing explanations, or a pattern of adverse actions after employees engage in protected activity.
No. If the employee also made the report through internal channels they will be protected, even if the employer does not know that they made a report to the SEC.
Multiple types of complaints can be filed under the Dodd-Frank Act. However, employees are most likely to concern themselves with a retaliation claim. Individuals are required to report information about possible securities laws violations to the Commission “in writing” before experiencing retaliation to qualify for the retaliation protection under Section 21F. See the Securities and Exchange website and the law for more information.
The Dodd-Frank Act’s statute of limitations requires employees to bring a retaliation claim within either 6 years of the date their employer retaliated against them or within 3 years of when the employee learned, or should have learned, the material facts giving rise to the claim. Extensions are possible, though a claim can never be brought more than 10 years after the alleged retaliation.
A Dodd-Frank retaliation claim must be brought within 6 years of the date of the reported violation. In certain circumstances, this can be extended, but a claim can never be brought more than 10 years after the reported violation.
After a tip is received by the SEC, it is fully reviewed by SEC Enforcement staff. If the complaint justifies further investigation, it is referred to one of the 11 SEC regional offices, a specialty unit, or to the Home Office. If the tip involves an ongoing investigation, it is forwarded to the staff involved with that matter. A tip may be used in different ways, whether to initiate an enforcement investigation, or to begin a review of security filings or regulated entities. The SEC generally does not disclose whether it has opened an investigation to protect the integrity of that process.
SEC generally does not disclose whether it has opened an investigation to protect the integrity of that process.
After the completion of an investigation, the SEC will post all successful actions which resulted in If you or your attorney works with SEC staff, you or your attorney may be contacted to alert you of the potential to collect an award.(This does not guarantee you will be eligible for that reward)
Awards for blowing the whistle for SEC violations can be from 10% to 30% of the amount the SEC recovers in sanctions. To be eligible for an award, the complaint must satisfy some guidelines set by the SEC:
- Information must be original, defined as independent knowledge or analysis not already known by the Commission and not taken exclusively from certain public sources, and to be voluntarily provided.
- The information must lead to a successful enforcement action. Information can be determined to lead to a successful enforcement action when it is specific and submitted timely causing the SEC to open or re-open an investigation or lead to a new inquiry in an existing investigation. If the investigation is already underway, the information must significantly contribute to the success of the action.
- The SEC must obtain monetary sanctions totaling more than $1 million dollars.
People NOT eligible for the award include:
- People who have a pre-existing legal or contractual duty to report this information to the Commission.
- Attorneys attempting to use information obtained from clients as claims for themselves.
- People who obtain the information illegally.
- Foreign government officials
- Employees who learn of the information from another employee or from the internal reporting processes within the organization.
- Public accountants working on SEC engagements
- People criminally connected with or who directed, planned or initiated the conduct reported on
The award amount is determined by different factors including the effectiveness of the information and outcome of the investigations. The rules do not require an employee to report internally to their employer, however, there are strong incentives to do so, including a possible increased reward amount. Finally, an employee is still eligible for an award if they internally report the information and their employer submits it to the SEC.
Whether or not you collect a whistleblower award from the SEC, you are protected from retaliation for making that report. If you are retaliated against because you file a complaint with the SEC, you can bring suit in federal court.
Successful whistleblower claimants can recover remedies in court that include:
- double back pay and benefits (including lost overtime)
- front pay
- compensatory damages (emotional pain and suffering)
- other equitable remedies (abatement and injunctions)
- Remedies also may include payment of:
- attorneys’ fees
- expert witness fees
- court costs
- tax consequences
Compensatory damages are available for mental anguish, pain and suffering, harassment, and lost future earnings.
“Front pay” may be sought in place of reinstatement, but reinstatement must be ordered upon a finding of wrongful discharge. Still, the courts will award front pay in place of reinstatement in cases where reinstatement is not a “viable option.” Complainants have a duty to “mitigate” (reduce the potential amount of) damages, for example, by looking for substitute employment.
It is difficult for most lay people to collect all the useful evidence, organize it into a persuasive story, and comply with all the procedural rules to win a whistleblower case. In addition, a lawyer experienced in Dodd-Frank claims can help you decide specific issues such as whether your initial complaint with the SEC should be “anonymous.” Some lawyers with experience in whistleblower cases will accept cases even when the client cannot afford to pay regular fees. If the lawyer has enough confidence in the client and in winning the case, the lawyer may accept the case on a contingent basis. The lawyer will be relying on the judge to award a fair amount of attorneys fees after the client has won a favorable decision. Clients will benefit from shopping around for a lawyer as soon as possible after the employer’s first adverse action. Then a lawyer can help make sure the complaint gets filed on time and at the right place.
When you shop for an attorney, look for attorneys who have experience in employment matters, or in whistleblower matters specifically. For more information, see our site’s attorney resources page.
Having a lawyer is not required to make a report to the SEC, but it is helpful as the rules can be complicated. Some whistleblowers have won cases representing themselves. Until you have a written agreement with a lawyer for representation, it is your responsibility to make sure the time limits are met in your case.