The Dodd-Frank Act whistleblower provisions reward whistle blowing and protect whistleblowers against retaliation. The Dodd-Frank Act creates a robust retaliation action for employees in the financial services industry. The scope of coverage is quite broad in that Section 1057 applies to organizations that extend credit or service or broker loans; provide real estate settlement services or perform property appraisals; provide financial advisory services to consumers relating to proprietary financial products, including credit counseling; or collect, analyze, maintain, or provide consumer report information or other account information in connection with any decision regarding the offering or provision of a consumer financial product or service. Under the Dodd-Frank Act, an individual who provides original information to the SEC or Commodity Futures Trading Commission (“CFTC”) which results in monetary sanctions exceeding $1 million shall be paid an award of 10 to 30 percent of the amount recouped. See Dodd-Frank Act § 748 (applying to CFTC whistleblowers) and § 922(a) (applying to SEC whistleblowers). The amount of the reward is at the discretion of the respective commission and factors to be considered in calculating the amount of the award include the significance of the information provided by the whistleblower, the degree of assistance provided by the whistleblower, the interest of the respective commission in deterring violations by making awards to whistleblowers, and other factors that the each commission may establish by rule or regulation. Id. An award shall not be paid to a whistleblower who has been convicted of a criminal violation related to the judicial or administrative action for which the whistleblower provided information; who gains the information by auditing financial statements as required under the securities laws; who fails to submit information to the SEC as required by an SEC rule; or who is an employee of the DOJ or an appropriate regulatory agency, a self-regulatory organization, the Public Company Accounting Oversight Board or a law enforcement organization. Id. Sections 748 and 922 of Dodd-Frank are not qui tam provisions, i.e., the whistleblower cannot pursue an action if the SEC or CFTC decline to act on the whistleblower’s disclosure.

1. Whistleblower Provisions of the
Dodd-Frank Act
Jason M. Zuckerman
The Employment Law Group® Law Firm
Tel: 202.261.2810
Fax: 202.261.2835
jzuckerman@employmentlawgroup.com
www.employmentlawgroup.com

2. Agenda
• New SEC whistleblower reward and protection
• New CFTC whistleblower reward and
protection
• New protection for financial services
employees
• Amendments to Sarbanes-Oxley Act (SOX)
• Amendments to False Claims Act (FCA)

3. Dodd-Frank Act
• Dodd-Frank Wall Street Reform and Consumer
Protection Act (DFA)
– Historic change in the regulation of U.S. financial
institutions and markets
– Requires private equity firms and hedge funds that
manage over $100 million to register with SEC
– Establishes new Bureau of Consumer Financial
Protection (CFPB) within the Federal Reserve
– Creates new whistleblower reward programs
– Expands whistleblower protections

4. § 922 –SEC Whistleblower
Reward and Protection

5. § 922
• Rewards whistleblowers (including nonemployees) who report corporate fraud or
wrongdoing
• Protects whistleblowers from employer
retaliation
• Modeled after IRS Whistleblower Program

6. § 922
• SEC must reward individuals who provide
“original information” that leads to “monetary
sanctions” exceeding $1 million
• Reward ranges from 10% to 30% of the
amount recouped

7. “Monetary Sanctions”
• “Any monies, including penalties,
disgorgement, and interest, ordered to be
paid;” and
• “Any monies deposited into a disgorgement
fund or other fund pursuant to Section 308(b)
of [SOX], as a result of such action or any
settlement of such action.”

8. Amount of § 922 Reward
• Factors SEC will consider:
–Significance of the information
provided
–Degree of assistance
–Interest of SEC in deterring violations
–Other factors SEC may establish by rule
or regulation

9. “Original Information” Requirement
• Information:
– Derived from the independent knowledge or
“analysis” of the whistleblower;
• Harry Markopolos’s analysis of Madoff’s scheme
– Not known to the SEC from another source unless
whistleblower is the original source; and
– Not exclusively derived from a government
hearing, report, audit, or investigation or the news
media unless whistleblower is a source

10. “Original Source”
• “Original source” is not defined in the statute
• IRS Whistleblower Program, 26 U.S.C. § 7623
– “original source” means the individual originally provided
“the information resulting in the initiation of the action”
• False Claims Act, 31 U.S.C. § 3730
– “original source” means “an individual who either
• Prior to a public disclosure, has voluntarily disclosed to the
Government the information on which these allegations or
transactions are based; or
• Has knowledge that is independent of and materially adds to the
publicly disclosed allegations or transactions, and who has
voluntarily provided the information to the Government before filing
an action under this section.”

11. Bars to Reward
• § 922 prohibits SEC from rewarding
whistleblowers who:
– Are convicted of a crime related to the matter;
– Gain the information from auditing statements as
required by law;
– Fail to submit the information to the SEC as
required by law; or
– Are employed by the DOJ, regulator, Public
Company Accounting Oversight Board, or law
enforcement

12. Persons Eligible for § 922 Reward
• Internal audit and compliance personnel are
eligible for a reward
• In-house legal personnel, but SEC might be
reluctant to accept privileged information
• Employees who learn of violations in the
course of performing their job duties

13. Appealing SEC Reward Determination
• SEC has sole discretion
• No qui tam provision
• Can appeal reward determination only where
reward amounts is not between 10% and 30%

14. § 922 Whistleblower Protection
• Private right of action
– No administrative exhaustion requirement
– Exempt from mandatory arbitration agreements
– Cannot waive rights granted under § 922
– SOL is 6 years after retaliation occurred or 3 years
after employee should have known of the
retaliation but no later than 10 years

15. § 922 Protected Conduct
• Providing information to the SEC in accordance with §
922;
• Initiating, testifying in, or assisting in any investigation
or judicial or administrative action of the SEC based
upon or related to such information; or
• Disclosing information required or protected by SOX,
the 1934 Act, and any other law, rule, or regulation
subject to the jurisdiction of the SEC.

16. Overlap of SOX and § 922
Protected Conduct
• § 922 protects disclosures that are also
protected under § 806 of SOX
• Employees may choose to proceed under §
922 rather than SOX because lack of
administrative exhaustion requirement
• But § 922 does not expressly authorize
compensatory damages

17. § 922 Actionable Adverse Actions
•
•
•
•
•
•
•
Termination
Demotion
Suspension
Discrimination
Harassment
Threatened adverse employment action
Courts will likely apply Burlington Northern
standard
– Any conduct that would dissuade a reasonable
employee from engaging in protected conduct

18. § 922 Remedies
•
•
•
•
Reinstatement or front pay
Double back pay with interest
Attorney’s fees
Litigation costs including expert witness fees

19. § 748 – New CFTC Whistleblower
Reward and Protection

20. § 748
• Commodity Futures Trading Commission
– Regulates trading of futures, options,
and derivatives
• § 748 of the Dodd-Frank Act:
– Rewards whistleblowers for reporting fraudulent
or manipulative trading practices to the CFTC
– Protects whistleblowers from retaliation

21. § 748 Whistleblower Reward
• Nearly identical to § 922
• CFTC has sole discretion to determine amount
of the reward
• Whistleblower can appeal CFTC reward
determination to U.S. Court of Appeals within
30 days

22. § 748 Whistleblower Protection
• Nearly identical to § 922
• SOL is 2 years after retaliation occurred

23. § 748 Protected Conduct
• “Providing information to the [CFTC] in
accordance with [§ 748]”
• Assisting any investigation or hearing related
to such information

24. § 748 Remedies
•
•
•
•
•
Reinstatement or front pay
Back pay with interest
Attorney’s fees
Litigation costs including expert witness fees
“Special damages”
– Under SOX, “special damages” construed to include compensatory
damages. Kalkunte v. DVI Fin. Servs., ARB Nos. 05-139, 05-140,
ALJ No. 2004-SOX-56 (ARB Feb. 27, 2009).

25. Impact of New Whistleblower
Reward Programs
• Incentive to get reward may spur employees
to bypass internal reporting mechanisms
• Underscores importance of encouraging
internal reporting, conducting legitimate
investigations and keeping concerned
employees in the loop.
• Update procedures and train employees on
options for reporting unlawful or unethical
conduct

26. Recommendations
•
•
•
•
Self-disclosure
Interview departing employees
Review releases
Training

27. § 1057 – Financial Services
Whistleblower Protection

28. § 1057 Financial Services
Whistleblower Protection
• Prohibits retaliation against whistleblowers
• Covers employers engaged in the “offering or
provision of a consumer financial product or
service”
– Covers “affiliates” who provide a related material
service to the employer including
• Design, operation, maintenance of those products or
services
• Processing related transactions
• Covers employees performing tasks “related to
the offering or provision of a consumer financial
product or service”

29. § 1057 Financial Services
Whistleblower Protection
• Examples of Covered Services:
– Loan underwriting
– Credit rating
– Real estate settlement
– Property appraisals
– Financial advisory services
– Credit counseling

30. Elements
1. Employee engaged in protected conduct
2. Employer knew employee engaged in the
protected conduct
3. Employer took adverse action against the
employee
4. Protected conduct contributed to adverse
action

31. § 1057 Protected Conduct
• Providing information to an employer, the CFPB, a
government regulator, or law enforcement, which
the employee reasonably believes relates to the
violation of consumer financial protection laws
– Reasonable but mistaken belief protected
• Assisting any related investigation or hearing
• Refusing to participate in an activity that the
employee reasonably believes to be a violation of
consumer financial protection laws

32. § 1057 Protected Conduct
• Duty speech defense does not apply
• Protects disclosures made “in the ordinary
course of the duties of the employee”

33. § 1057 Actionable Adverse Actions
• “No covered person or service provider shall
terminate or in any other way discriminate
against, or cause to be terminated or
discriminated against . . .”
• Courts will likely apply Burlington Northern
standard
– Any conduct that would dissuade a reasonable
employee from engaging in protected conduct

34. § 1057 Burden-shifting Framework
• Same as Section 806 of SOX
• Employee has initial burden of proving by
preponderance of evidence that the protected
conduct was a contributing factor in the
adverse action
• Burden then shifts to employer to prove by
clear and convincing evidence it would have
taken the adverse action even in the absence
of employee’s protected conduct

35. § 1057 Remedies
• “Make whole” relief
– Reinstatement or front pay
– Single back pay with interest
– Compensatory damages
– Attorney’s fees
– Litigation costs including expert witness fees

36. Procedures Governing 1057 Claims
•
•
•
•
Exempt from mandatory arbitration agreements
Statute of limitations is 180 days after the date
on which alleged violation occurs
OSHA investigates and either party can request a
hearing before a DOL ALJ
If DOL does not issue a final order within 210
days of the filing of the complaint, the employee
can remove the claim to federal court and either
party can request a jury trial

37. Amendments to § 806 of
Sarbanes-Oxley Act (SOX)

38. Amendments to § 806 of SOX
• Broadens the scope of coverage
• Increases the SOL to 180 days after employee
becomes aware of the retaliation
• Exempts § 806 claims from mandatory
arbitration
• Clarifies right to jury trial

39. Broadening SOX Coverage
• Dodd-Frank clarifies that § 806 of SOX covers
employees of:
– subsidiaries of publicly-traded companies when
the subsidiary’s financial information is included in
the publicly-traded company’s consolidated
statements
– Nationally Recognized Statistical Rating
Organizations and credit rating agencies
• Arguably applies to pending cases

40. Amendments to § 3730(h) of
False Claims Act (FCA)

41. False Claims Act (FCA)
• Prohibits direct or indirect submission of
fraudulent claims to the government
• Includes qui tam provision that allows individuals
to bring suit on behalf of the government and
obtain up to 30% of the amount recovered
– Filed under seal and DOJ decides whether to
intervene
• § 3730(h) prohibits employers from retaliating
against whistleblowers

42. Dodd-Frank Amendments to § 3730(h)
• Extends protection to individuals “associated”
with the whistleblower
– Supreme Court will consider associational
discrimination under Title VII in Thompson v. North
American Stainless
• Broadens protected conduct to include activity
“in furtherance of an action under this section”
• SOL is 3 years after retaliation occurred
– Prompted by Graham County Soil & Water
Conservation Dist. V. U.S. ex rel. Wilson, 545 U.S. 409
(2005)
• Court should apply most closely analogous state SOL

43. FERA Amendments to § 3730(h)
• May 2009 Fraud Enforcement and Recovery
Act of 2009 (“FERA”) amended § 3730(h):
– FCA retaliation provision applies to contractors
and agents
– Protected conduct includes any efforts to stop one
or more violations of the FCA