A provision of the Dodd-Frank Act expands what once rewarded whistleblowers for providing only insider trading information to now compensating a person for similar information resulting in “any judicial or administrative action brought by the commission under the securities laws that result in monetary sanctions exceeding $1,000,000.” The Act allows for payments to be made for information regarding The Foreign Corrupt Practices Act (“FCPA”) violations as well as in such areas as corporate disclosure matters, accounting fraud, broker-dealer violations, or in any similar matter that could possibly result in a civil penalty or disgorgement.
The Dodd-Frank Act has made the offer even more enticing to the whistleblower. Previously, there was a 10-percent cap on the recovered amount; now the award amount has been raised to a minimum of 10 percent of the monetary sanctions imposed in the case, with a maximum award of 30 percent. All the information provided must be original to qualify, and whistleblowers may be represented by counsel through whom they can provide information anonymously. The identity of a whistleblower, however, must be disclosed prior to the payment of any award.
Recently, there has been a dramatic rise in the number of FCPA cases being prosecuted, with criminal and civil penalties, disgorgements and settlements totaling hundreds of millions of dollars – and this all happened before the passage of the Dodd-Frank Act. We can reasonably expect these actions to escalate now that there is a monetary incentive as well as a measure of protection for the whistleblower, as an employer may not “discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower” in reporting information to the SEC or testifying in an investigation or legal proceeding.
Companies should reasonably expect that with the allure of a multimillion dollar payout, there may be individuals within their organizations for whom this new law will be appealing; instead of following the protocol for internal disclosure, they will look to bring information relating to a potential matter to the attention of the SEC. A solid offense is the best defense should this situation arise. Before any whistleblower even considers accumulating data, a company should be fortifying its internal controls and compliance programs as well as ensuring that its FCPA training programs are current.