When Donald Trump was elected President of the United States in November, he vowed to “dismantle” the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). In its place, Trump promised to replace the law “with new policies to encourage economic growth and job creation.” Now a bill known as the Financial CHOICE Act may initiate the process to do just that. But at least with respect to Dodd-Frank’s whistleblower provisions, the Financial CHOICE Act would leave largely intact the current bounty programs that have already awarded tipsters over $150 million in the U.S. and abroad.
The Financial CHOICE Act, passed by the House on June 8, does contain one notable change to Dodd-Frank’s whistleblower provisions: Section 828 of the Act would prevent the SEC from granting monetary awards to “any whistleblower who is responsible for, or complicit in, the violation of securities laws for which the whistleblower provided information to the Commission.” A person would be “responsible for or complicit in” the violation if, with the intent to promote or assist the violation, the person:
(A) procures, induces or causes another person to commit the offense;
(B) aids or abets another person in committing the offense; or
(C) having a duty to prevent the violation, fails to make an effort the person is required to make.
This language appears broader than the existing Dodd-Frank language, which precludes the SEC from awarding a bounty when a whistleblower is “convicted of a criminal violation related to the judicial or administrative action for which the whistleblower otherwise could receive an award under this section.” Under the new bill, it appears that a conviction would not be required and instead the SEC would make its own determination of whistleblower culpability for award eligibility purposes.
Other than this change, the bill does not appear to seek to repeal or otherwise modify the Act’s whistleblower bounty provisions. Nor would it amend Dodd-Frank’s SEC anti-retaliation protections, which currently provide for a direct right of action in federal court, reinstatement and double back pay remedies for a successful plaintiff, and an extended statute of limitations to file a retaliation claim.
If the bill becomes law, some believe that the number of SOX whistleblower claims may increase. Since Dodd-Frank went into effect, the number of SOX whistleblower retaliation claims has fallen according to statistics from the Department of Labor. One reason for this is likely that, in addition to the whistleblower provisions of Dodd-Frank, many other laws now have their own specialized whistleblower provisions, thereby reducing the need for individuals to seek protection under SOX. In light of these new laws, we do not think the passage of the Financial CHOICE Act as proposed would have a material impact on the number of SOX filings.
The bill, H.R. 10, has passed the House by a vote of 233-186 and will now go to the Senate for consideration. This blog will continue to closely monitor these developments.