The Dodd-Frank Wall Street Reform and Consumer Protection Act
By: Sharon Ely, Human Resources Director
July 13, 2011
On July 21, 2010, President Obama signed into law the "Dodd-Frank Wall Street Reform and Consumer Protection Act". Final Rules were adopted on May 25, 2011 and the Act will be effective on August 12, 2011. This Act contains new incentives for whistleblowers as well as enhanced anti-retaliation protections. These protections apply to both public and private employers across all industries. Employers need to be aware of how these new laws could impact their business so that proactive steps can be taken to minimize claims.
New Whistleblower Financial Incentives
Section 922(a) of the Dodd-Frank Act amends the Securities Exchange Act of 1934 to create a substantial financial incentive for whistleblowers who voluntarily report "original information" directly to the Securities and Exchange Commission (SEC) that leads to successful enforcement and the recovery of more than $1 million in monetary sanctions. The Act states that qualified s shall be awarded 10 percent to 30 percent of the collected monetary sanctions, with the specific amount within this range determined at the discretion of the SEC. The amendments allow the whistleblower to anonymously provide the information through counsel, but disclosure of identity is required to receive an award.
Section 748 of the Dodd-Frank Act amends the Commodity Exchange Act to establish a similar financial incentive-an award of 10 percent to 30 percent of the collected monetary sanctions (exceeding $1 million)-for whistleblowers who voluntarily provide "original information" to the Commodity Futures Trading Commission (CFTC).
The concept of a "bounty program" to encourage whistleblowers to come forward is not new. For more than 20 years the SEC has had authority, under Section 21A(e) of the Securities Exchange Act, to award bounties of up to 10 percent of the penalties recovered in insider trading cases.
What is new is the size and scope of the new program. The new incentives in the Dodd-Frank Act are more broadly applicable and promise to be significantly more lucrative for whistleblowers than those under the prior program, which historically resulted in few awards. Employers face the risk that the lure of a large payout to the first person to provide "original information" to the SEC or the CFTC may lead employees to hasten to report suspected violations directly to the government rather than using internal complaint procedures. Not only could this result in a flood of meritless complaints, but companies may lose the chance to investigate and address potential problems before a government investigation begins.
The SEC's proposed regulations encourage employees to use internal company compliance programs with a 90-day grace period. This grace period enables employees to use internal compliance procedures while preserving their place in line for a possible award from the SEC. In addition, the SEC has stated that it will "consider higher percentage awards for whistleblowers who first report violations through their company's internal compliance programs." The proposed regulations would also require a whistleblower to submit the information to the SEC under penalty of perjury to qualify for a bounty award.
Anti-Retaliation Protections
In addition to containing new financial incentives, Section 922(a) creates a private right of action for securities whistleblowers who claim to have suffered retaliation. This provision prohibits employers from discharging, demoting, suspending, threatening, harassing or otherwise discriminating against a whistleblower because of any lawful act by the whistleblower in either reporting or participating in the investigation or prosecution of violations of the securities laws, including disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (SOX).
False Claims Act Expanded
Section 1079A establishes a uniform three-year statute of limitations for a retaliation claim under the False Claims Act. This section also broadens the range of activity protected under the False Claims Act and adds protection for associational discrimination by expanding the definition of protected conduct to include lawful acts by "associated others" in addition to the employee, contractor or agent, in furtherance of an action to stop violations of the False Claims Act.
What Can Employers Do to Minimize Whistleblower Risks?
We recommend taking the following best practice steps to encourage internal complaint compliance.
- Message from the Top: The voice that carries the farthest within any company comes from the top. Consider having the CEO or President speak periodically about the importance of maintaining an effective compliance culture and the need for employees to recognize that they are the company's first line of defense and should therefore promptly report any compliance concerns they spot. This message can be conveyed at periodic "town halls" with employees, through newsletters or intranet messages.
- Supervisory Training: Supervisors should receive compliance training on maintaining proper communication and guidance to employees with an emphasis on avoiding any form of retaliation or discrimination against employees who express compliance concerns.
- Effective Employee Training: Conduct periodic training and include employee acknowledgement forms or certificates of completion for training.
- Incorporate Compliance as an Element of Job Performance: Include 'Compliance' as an evaluation element in annual performance appraisals to reinforce cultural awareness within the company.
- Use of a Hotline: Establish a hotline process and send periodic information reminding employees of the easy availability of hotlines or other reporting mechanisms.
- Exit Interview Procedures: Whenever an employee exits from the company, the exit interview process should include a compliance component that allows the employee to comment on potential compliance issues. Such issues should be documented with follow-up action if required.
- Respond Promptly: When compliance complaints arise, it is critical that the company promptly and thoroughly investigate the complaint and that regular communication take place with the complainant so the investigation proceeds in a professional, timely and appropriate manner.
By following the guidelines above, companies minimize their compliance risk and provide a well documented record of the company's good faith effort to establish a culture of compliance. These steps can have a positive impact on the thinking of government regulators and legal counsel if a whistleblower allegation does arise.
Contact the Achilles Group for information on our Compliance, Training or HR Solutions.