WHAT IS THE Dodd-Frank Act?
The Dodd-Frank Act introduces significant protections for whistleblowers, offering financial rewards to those who expose fraud in businesses regulated by the SEC or CFTC. Recognizing the pivotal role whistleblowers play in uncovering corporate fraud—a costly issue for the U.S. government—this legislation aims to incentivize more individuals to come forward by offering them a share of the financial recoveries from their disclosures. This bounty ranges from 10 to 30 percent for recoveries exceeding $1 million, fostering a culture of transparency and accountability.
Who is eligible ?
For a whistleblower to qualify for a reward under the Dodd-Frank Act, they must report original information to the SEC or CFTC, ensuring the government was previously unaware of the fraud. The reward’s size, determined by the SEC or CFTC, reflects the significance of the information and the whistleblower’s contribution. Anonymity is safeguarded until it’s determined if the whistleblower’s information results in a financial recovery, allowing them to file anonymously through an attorney.
This New Act Expands on Whistleblower Actions under the False Claims Act QUI TAM
The Dodd-Frank Act was modeled after the False Claims Act, an important law for whistleblowers. Under the False Claims Act, whistleblowers with independent knowledge of financial fraud against the government can bring a special “qui tam” lawsuit. In a qui tam action, the whistleblower is known as a “relator” and sues on behalf of the federal government. Successful qui tam whistleblowers receive a percentage, typically 15-25%, of the recovered amount.
A key difference between Dodd-Frank and the False Claims Act is their scope. The False Claims Act only covers financial fraud against the government, while Dodd-Frank is much broader, applying to any type of financial fraud by companies under SEC or CFTC jurisdiction.
Dodd-Frank also broadly explains who can bring a whistleblower claim. As written, nearly anyone who has dealt with the company may qualify, including current and former employees, customers, suppliers, and even board members. However, the SEC has proposed limiting certain parties’ ability to bring claims, such as those who received the information as part of their duty to respond to the wrongdoing.
WALL STREET BUSINESSES Concerned
Businesses have expressed concerns about the Dodd-Frank Act, fearing it might sidestep established internal processes for handling fraud and abuse complaints. They worry that significant financial rewards could motivate employees to bypass internal reporting mechanisms, opting instead for direct reports to legal authorities or the SEC. This apprehension seemed validated as whistleblower claims surged post-act. Despite corporate hopes for mandated internal reporting, the SEC proposed a softer approach, merely suggesting whistleblowers first utilize internal channels, with certain provisions to maintain the “originality” of reported information.
Initially, it appears they were right: According to The Wall Street Journal, the number of whistleblower suits filed after Dodd-Frank’s passage increased ten-fold. There have also been huge recent bounties paid to whistleblowers who filed qui tam actions under the False Claims Act. For example, Cheryl Eckard is set to receive $96 million for her GlaxoSmithKline fraud case, while whistleblowers received $80 million from Pfizer’s 2009 settlement and $37 million in the recently settled Allergan Botox marketing case.
Big businesses hoped the SEC would require whistleblowers to first file an internal complaint before going to the SEC. However, the SEC only proposed a rule “encouraging” use of internal procedures first.
FILING A WHISTLEBLOWER ACTION
The SEC is still in the rule-making process for implementing the provisions of the Dodd-Frank Act. The last day for public comments on the proposed rule was December 17 and the agency has stated that it expects the final rules to be in effect by the beginning of 2011.
Until these rules are finalized, it is not yet clear what process whistleblowers will have to follow in order to file a claim under the Act. In the meantime, those with independent knowledge of a fraud committed against the government have the option for filing a qui tam action.
Qui tam actions are filed in federal district court. In addition to filing the claim, claimants also are required to include a statement disclosing all of the information the claimant has of the fraud. Once the claim is filed, it is placed under seal for 60 days while the Department of Justice investigates the claim to determine if the government will join the action. The DOJ also may attempt to settle the claim, or in the alternative, also may seek to have it dismissed. The federal government does not have to join the claim for the qui tam action to proceed; however, having the government join the claim can make it stronger.
In general, to be eligible to file a qui tam claim, the information of the fraud cannot have been obtained from a public source or otherwise known to the government. If the information is from a public source, then the claimant still may be able to bring the qui tam action so long as he or she is an “original source” of the information. This means that the claimant has “direct and independent” knowledge of the information and the claimant provided the information to the government before filing the qui tam action.
Top 5 Types of fraudulent claims seen as the basis of a whistleblower case are:
- Charging for products or services while not producing or delivering
- Marketing of Off-label pharmaceuticals
- False negotiation
- Substituting goods and services
- Falsely certifying a business to be entitlement to receive benefits from government
Current and former employees are the most common people to bring whistleblower claims, but they also may be brought by subcontractors, state and local governments, public interest groups and even corporations.
Call GEORGIA TOP WHISTLEBLOWER ATTORNEYS FOR A FREE CONFIDENTIAL CONSULTATION
if you are contemplating case filing for a whistleblower case under any act, whether it is the False Claims Act or Dodd-Frank Act, you need to get in touch with an experienced Georgia Whistleblower lawyer ASAP. contact our experienced Georgia attorneys today and schedule a free, confidential appointment.