When the Dodd-Frank Bill was signed into law by President Obama in July, an era marked by a flood of federal investigations sparked by bounty-hunting employees looking to cash in on rewards that, in some cases, could turn them into instant millionaires began.
“The decade of the whistleblower” is upon us, according to two attorneys at Newark-based law firm LeClairRyan.
"Let's assume your company is privately owned and does business in Malaysia," said Carlos F. Ortiz, a white-collar defense attorney for LeClairRyan. "If your chief competitor in the market is a publicly-traded American company that, thanks to a whistleblower complaint, becomes the target of a federal investigation, the Department of Justice might launch a broader 'industry probe.' DOJ might say, in effect, 'Now that we know Company X was bribing officials in Malaysia to get work, let's investigate all of its competitors.'"
Ortiz, who served as a federal prosecutor for more than 15 years, and James P. Anelli, a labor and employment attorney with experience representing management, will host a webinar on Oct. 29 on the impact of the Dodd-Frank whistleblower provisions.
The attorney said that while the Wall Street reform legislation has been widely discussed, its extremely significant whistleblower provisions have gone nearly unnoticed, but under those provisions, whistleblowers that provide information that exposes SEC violations will get up to 30% of fines exceeding $1 million.
"Bear in mind that recent fines involving violations of the Foreign Corrupt Practices Act have reached up to $100 million," Ortiz noted. "The fallout from these whistleblower provisions will be huge. This is an incredible incentive for employees who are looking to get rich to do all they can to gather information on, and report, potential violations by their employers. Why would they go through existing compliance hotlines when they can contact a plaintiff's attorney and pursue such potentially lucrative payouts?"
Generally speaking, the scope of previous SEC whistleblower laws was limited to cases of insider trading. Dodd-Frank, which will be administered by the newly created Bureau of Consumer and Financial Protection, applies to all potential SEC and commodities-trading violations. For a variety of reasons, it will affect a broad swath of both private and public entities, Anelli noted.
"In the old days, whistleblower laws applied to Wall Street traders using insider knowledge to swap 'hot stock tips' with each other, but the new framework is quite broad," he said. "It applies to virtually any company that deals with consumer credit, loans or property in any capacity, including mortgage brokers, financial advisors and credit-counseling services."
Anelli said the new whistleblower provisions apply to all of the subsidiaries of any public company. "A large public company might have 100 subsidiaries, and as long as the financial information of those subsidiaries is used in its consolidated financial statement, those entities are covered under this law," he said. "The 'Wall Street reforms' actually have a reach that is far beyond the publicly-traded realm."
The stakes are high: Federal enforcement actions have been increasingly aggressive in recent years, with approximately 150 companies already under investigation for FCPA violations and a growing number of individual executives being singled out for prosecution.
"The reforms included a burden-shifting framework that is favorable to employees," Anelli said. "Under this framework, employees in many instances will now be able to show that they meet the burden of proof that is required to recover their cut of the eventual fine. Because of the amounts involved, whistleblower cases are going to turn into big business for plaintiff's law firms. As more whistleblowers start making big bounties—and headlines—the number of investigations will only grow. Careful preparation clearly is in order."
The webinar is expected to examine how companies can protect themselves against bogus complaints filed by bounty-seeking employees, what specific practices and departments tend to be at highest risk of being cited for an SEC violation, and how the new anti-retaliation provisions would impact the way managers should conduct themselves in the wake of a whistleblower complaint.
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