Financial Reform Bill Compensates Whistleblowers Assisting the SEC

Financial Reform Bill Compensates Whistleblowers Assisting the SEC

On June 30, 2010, the House passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act"), a final version of a bill that emerged from a House-Senate conference on June 29, 2010.1 The Act calls for comprehensive financial reform and includes a program that would reward whistleblowers who aid the Securities and Exchange Commission (SEC) in investigating securities violations, including violations of the FCPA. The Act is the final version of a House bill proposed in December 2009 and a similar Senate bill introduced in March 2010 by Senate Banking Committee Chairman Christopher Dodd (D-CT).2

The Act provides for the SEC to pay an award to one or more whistleblowers who "voluntarily provided original information to the Commission that led to the successful enforcement" of any administrative or judicial action brought by the SEC that results in monetary sanctions exceeding $1,000,000.3 The award amount shall be "not less than 10 percent" and "not more than 30 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions."4 The SEC will also consider other factors in determining the final amount of the award, such as the significance of the information provided, the degree of assistance provided by the whistleblower, the "programmatic interest" of the SEC in awarding whistleblowers, and any other relevant factors.5

The proposed legislation defines "whistleblower" as any individual who provides information relating to a violation of the securities laws6 but does not provide an award to a whistleblower if, at the time the information is acquired, he or she is an employee of "an appropriate regulatory agency," the DOJ, or a self-regulatory organization, or if he or she is a member of the Public Company Accounting Oversight Board or a law enforcement organization.7 In addition, the whistleblower will not be awarded if he or she is convicted of a criminal violation related to the underlying action, or if he or she acquired the information in the performance of an audit of financial statements required under the securities laws.8

The whistleblower provision in the Act is significant because of the potentially enormous financial incentive it provides for whistleblowers. Notably, the award is a percentage of the penalties from the underlying action, as well as any related action. For that reason, any subsequent DOJ penalty or foreign penalty could be aggregated into the whistleblower award. This could lead to a potential windfall for a whistleblower. For example, if the legislation had been in place in December 2008 during the Siemens investigation and subsequent sanctions,9 a whistleblower for that action could have received nearly $500 million because Siemens was subject to a total monetary sanction of $1.6 billion, the largest aggregate FCPA monetary penalty to date.10

As the SEC continues to increase the number of enforcement actions it undertakes, the award could affect how and when a company decides to voluntarily disclose information. In addition, the whistleblower legislation underscores the importance of establishing clear procedures related to privileged corporate information and encouraging employees to first report any potential securities law violations to the company.

1 The Dodd-Frank Wall Street Reform and Consumer Protection Act, H.R. 4173, 111th Cong. (2010).
2 Restoring American Financial Stability Act of 2010, S. 3217, 111th Cong. (2010).
3 H.R. 4173, 111th Cong. § 748 (2010).
4 Id.
5 Id.
6 Id.
7 Id.
8 Id.
9 See United States v. Siemens Aktiengesellschaft, No. 1:08-cr-00367-RJL (D.D.C. Dec. 12, 2008) and SEC v. Siemens Aktiengesellschaft, No. 08-CV-02167 (D.D.C. Dec. 12, 2008).
10 The Siemens penalty consisted of a fine of over $450 million from the DOJ, $350 million in disgorgement, and nearly $850 million by the German authorities. See Press Release, United States Department of Justice, Siemens AG and Three Subsidiaries Plead Guilty to Foreign Corrupt Practices Act Violations and Agree to Pay $450 Million in Combined Criminal Fines (Dec. 15, 2008), available at


March 26-27: 5th Annual Residential Mortgage Servicing Rights Conference

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