New Financial Reform Law Provides Assorted Employee Whistleblower Protections
By Ted Olsen
President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank" or "Act"), Pub. L. 111-203, on July 21, 2010. By any measure, the Act is "complex" legislation. It has 552 sections, most with scores of subparts. The Senate version of the law had some 1300 pages; the Act reported by the Conference Committee was more than 2300 pages in length. The Act amends more than 30 existing federal laws, creates a host of new government entities with new and extensive powers, and adds to the authorities of existing entities including the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Federal Reserve System, the Comptroller of the Currency, and the Federal Deposit Insurance Corporation. The ambitious scope of the new law - intended to clean up "Wall Street," protect debtors and consumers, restore American financial stability, and yes, even stop sexual- and gender-based violence in the Democratic Republic of the Congo (see, Section 1502) - has few equals.
Protecting employees per se was not one of the main objectives of Dodd-Frank. Nevertheless, because Congress chose to make employees some of the key enforcers of the Act, they provided extensive legal protections for those enforcers - including numerous protections for employee-whistleblowers, as summarized below.
Sarbanes-Oxley Protections Extended to Employees of Private Subsidiaries of Publicly-Traded Companies.
Dodd-Frank, notably, amended SOX so as to reach employers that were not previously covered by Sarbanes-Oxley - and, by doing so, has extended whistleblower protections to employees who were not previously protected by SOX. With the amendments, SOX will extend to "any subsidiary or affiliate whose financial information is included in the consolidated financial statements of" the companies previously covered by SOX. This means that employees of non-public subsidiaries of publicly-traded companies - subsidiaries that heretofore have not been covered by Sarbanes-Oxley - will now be protected by SOX.
Limitations Period for SOX Complaints Extended.
SOX Court Lawsuits to be Tried to Juries.
Protections for Employees in the Consumer Financial Products or Services Industry.
Under the Act, a covered employee  in the consumer financial products or services industry may not be discriminated against for:
The remedies available to consumer financial products or services industry whistleblowers under Title X do not match those available under the newly-amended SOX. Both laws provide for reinstatement of an employee with full seniority rights, back pay, reasonable attorneys fees, expert witness fees and other litigation fees. However, certain SOX remedies were mysteriously omitted for consumer financial goods and services industry whistleblowers: interest on back pay, "special damages," and "all relief necessary to make the employee whole." Likewise, these newly-created whistleblowers are entitled to "affirmative action to abate the violation" and "compensatory damages," relief not available under the amended SOX or other whistleblower laws.
Protections for Bounty Hunters Who Provide "Original Information" in Securities-Related Investigations.
Under Section 922, the SEC will pay between 10 and 30 percent of any collected monetary sanctions to one or more whistleblowers who voluntarily provided "original information" that leads to successful enforcement in any judicial or administrative securities law action it brings. "Original information" is generally defined as information that "(A) is derived from the independent knowledge or analysis of a whistleblower; (B) is not known to the Commission from any other source, unless the whistleblower is the original source of the information; and (C) is not exclusively derived from an allegation made in a judicial or administrative hearing, in a governmental report, hearing, audit, or investigation, or from the news media, unless the whistleblower is a source of the information."
Dodd-Frank prohibits an employer from discriminating against an employee for providing "original information" to the SEC; for initiating, testifying in, or assisting in any investigation or judicial or administrative action of the SEC "based upon or related to such information"; or for making any disclosure required or protected by SOX or any law under the SEC's jurisdiction. The law raises many unanswered questions. For example, it is unclear from the text of the Act whether an employee who gives the SEC information, but does not receive a bounty payment for one of numerous possible reasons, will be protected. Likewise, it is unclear whether an employee who claims a bounty in bad faith will be protected. It is also uncertain whether a whistleblower will be protected if an SEC proceeding is successful, but the whistleblower's information was not material to the outcome.
No Administrative Filing Requirement for Those Who Provide "Original Information" in Securities-Related Investigations.
Lengthy Limitations Period for Lawsuits by Those Who Provide Securities-Related "Original Information."
Protections for Bounty Hunters Who Provide "Original Information" in Commodities-Related Investigations.
No Administrative Filing Requirement for Those Who Provide "Original Information" in Commodities-Related Investigations.
Lengthy Limitations Period for Lawsuits by Those Who Provide Commodities-Related "Original Information."
Pre-Dispute Arbitration Agreements are Invalid.
Inconsistencies Between the Laws.
Also, the remedies that Dodd-Frank makes available to various types of whistleblowers are not consistent. One example: the securities-related whistleblowers protected by Section 922 may recover double back pay, a remedy not available to any other whistleblower covered by Dodd-Frank or SOX.
On the other hand, the SOX amendments appear in a Title of the Act that will not become effective until the so-called "designated transfer date." This is the date by which all the consumer protection functions of the Federal Reserve Bank's Board of Governors, the Federal Trade Commission, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the National Credit Union Association, the Department of Housing and Urban Development, the Comptroller of the Currency, and other similar agencies are to be transferred to the newly-created Bureau of Consumer Financial Protection. The "designated transfer date" must be agreed upon by the Secretary of the Treasury and the heads of various affected agencies within 60 days of the new law's enactment, i.e., by September 20, 2010. The "designated transfer date" may be no earlier than January 18, 2011, and no later than July 21, 2011.
Title X of Dodd-Frank, which protects those in the consumer financial products or services industry, will become effective on the designated transfer date (explained above).
Section 922 of the Act, protecting bounty hunters who provide "original information" in securities-related investigations, will take effect two years after the date of the new law's enactment, i.e., July 21, 2012. Meanwhile, the parallel provisions of the law relating to commodities investigation whistleblowers will become effective much earlier, 360 days after Dodd-Frank's enactment, i.e., July 16, 2011.
 Section 1057(b) defines "covered employee" as "any individual performing tasks related to the offering or provision of a consumer financial product or service."
 Dodd-Frank makes the Bureau of Financial Protection the primary enforcer of the federal consumer financial laws as to the nation’s largest insured banks, savings associations and credit unions, those with total assets of over $10 billion, and any affiliate of such institutions. As to other institutions, the Bureau will coordinate with the prudential regulator in the enforcement of the federal consumer financial laws. It is arguable that the whistleblower protections in Title X will be limited to employees of only those institutions within the jurisdiction of the Bureau. However, because the breadth of the protected activity includes cooperation with "any governmental authority or law enforcement agency [emphasis added]," not just the Bureau, and instituting proceedings in the enforcement of "any federal consumer financial law [emphasis added]," not just Title X, the protections likely extend beyond employees of institutions directly governed by the Bureau.
 The Act defines "covered person" as "any person that engages in offering or providing a consumer financial product or service," and any affiliate of any such person if the affiliate acts as a service provider to the said person. (Sec. 1002(6).)
 "Service provider" is defined in Dodd-Frank as "any person that provides a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service," including a person that designs, operates, or maintains the consumer financial product or service, as well as a person that processes transactions relating to the consumer financial product or service. (Sec. 1002(26).)
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©2010 Sherman & Howard L.L.C. September 10, 2010