The Dodd-Frank Wall Street Reform and Consumer Protection Act just signed into law by President Obama, H.R. 4173, 111th Cong. (2010) (“Dodd-Frank”), creates new statutory rights and incentives for whistleblowers and also expands already existing rights, such as under the Sarbanes-Oxley Act (“SOX”). Now more than ever, clear policies and procedures backed by strong audit, compliance and investigatory functions are critical to managing the anticipated increase of regulatory enforcement and private party whistleblower litigation that this expansive legislation likely will create.
Here are the highlights:
- Dodd-Frank incentivizes individuals to aggregate and then report information that leads to a successful enforcement action of the Securities Exchange Commission (“SEC”), the Department of Justice (“DOJ”) or other arms of government, by entitling an individual to between 10% and 30% of monetary sanctions exceeding $1 million as a result of “original information” provided by the individual;
- Dodd-Frank creates new whistleblower protections by prohibiting retaliation against an individual who provides information related to violations of securities laws to the SEC, who participates in any related SEC action, or who makes required disclosures under the Securities Exchange Act, SOX, or any law or regulation within the SEC’s jurisdiction;
- Dodd-Frank entitles an individual to bring a private whistleblower action directly in federal court where he or she may be entitled to reinstatement and two times back pay;
- Dodd-Frank incentivizes plaintiffs’ counsel to pursue whistleblower actions through lengthy limitations periods and allows for reimbursement of costs and attorneys’ fees to a prevailing plaintiff;
- Dodd-Frank gives the SEC the authority to restrict pre-dispute arbitration agreements between customers or clients of brokers, dealers, or municipal securities dealers, so long as the SEC views the limitations as being in the public interest or to protect investors;
- Dodd-Frank creates a new private whistleblower action for alleged retaliation for any individual who provides information to the SEC; initiates or participates in any investigation or judicial or administrative action of the SEC; or makes disclosures as otherwise required under a variety of Federal laws including SOX and believes they were retaliated against as a result;
- Dodd-Frank amends SOX to expand coverage of the SOX whistleblower provisions to now include both publicly-traded companies and “any subsidiary or affiliate whose financial information is included in the consolidated financial statements of such” publicly-traded company;
- Dodd-Frank amends SOX to expand the time an individual has to bring a SOX whistleblower claim from 90 days after a violation occurs, to within 180 days of the aggrieved individual learning of the violation;
- Dodd-Frank amends SOX to allow a jury trial of whistleblower claims; and
- Dodd-Frank declares void any pre-dispute arbitration agreements waiving rights and remedies provided by SOX.
Although the regulations implementing and related to this legislation have not yet been written, an individual who submits information will still be entitled to the statutory protections the legislation affords. Just as individual whistleblowers and their lawyers will not wait around for this legislation to ripen, companies subject to securities laws need to address the Dodd-Frank Act immediately and thoughtfully in a coordinated and deliberate fashion. As the regulations are drafted and this enormous piece of legislation gains traction in the coming days, weeks and months, please consult the Hunton Employment & Labor Perspectives Blog for related in-depth analyses and updates.