In recent years we have seen two trends of great importance to the conduct and defense of government investigations – one, the growth of state agency investigations of matters previously handled on the federal level, and two, the growth of whistleblowing as a basis for government investigations. These two trends have come together in a proposed New York State law that would establish whistleblower bounties and protections for information given to the New York State Department of Financial Services (“DFS”) – a super agency formed in October 2011 to regulate banks and insurance companies in New York.
While New York State’s False Claims Act provides a bounty to whistleblowers for successful claims involving fraud against the state government, that law does not reach the full range of financial wrongs prohibited by New York’s laws. The sponsors of the proposed new law, Bill S4362, seek to fill this gap.
Bill S4362 tracks the whistleblower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which authorize the CFTC and SEC to reward individuals who provide information concerning violation of federal commodities and securities laws, and provides protections against retaliation by employers against whistleblowers. Of particular note, S4362 would entitle eligible whistleblowers to between 10 and 30 percent of monetary sanctions obtained by DFS for violations of New York’s banking, insurance and financial services laws.
These whistleblower incentives have been proposed against the backdrop of high-profile settlements reached by DFS since its formation two years ago. DFS attracted considerable attention in August 2012 when Standard Chartered PLC agreed to pay $340 million to settle DFS allegations that the bank violated anti-money laundering laws in connection with transactions for Iranian customers. Since then, DFS has announced several noteworthy settlements, including receiving $25 million in settlements with force-placed mortgage insurers last spring (see here, here and here). Under Superintendent Benjamin Lawsky, DFS has made it clear, through its enforcement actions and regulatory reforms, that it will be an active regulator of the financial services industries in New York.
The incentives provided to whistleblowers if S4362 passes are substantial. If the Standard Chartered investigation had resulted from information derived from a whistleblower, and S4362 had been in existence, the whistleblower would have been eligible to receive between $34 million and $102 million. Comparable incentives in the Dodd-Frank law led to over 3,000 tips, complaints or referrals to the SEC in Fiscal Year 2012 according to the Annual Report on the Dodd-Frank Whistleblower Program.
When the New York State Senate reconvenes in January 2014, will S4362 pass and, if passed, will it similarly provide a deluge of tips to DFS? Will whistleblowers be motivated by the prospect of not just a federal bounty, but also a state bounty? Or will the federal government and New York seek to prevent double bounties through additional legislation or rulemaking, further complicating financial investigations? Only time will tell…