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Financial Services Law Insights and Observations


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  • CFTC announces $30 million whistleblower award


    On July 12, the Commodity Futures Trading Commission (CFTC) announced an approximately $30 million award to a whistleblower who volunteered information that led to an enforcement action. This is the fifth and largest award—previously the highest was around $10 million— given by the CFTC’s whistleblower program, created by the Dodd-Frank Act. Director of the CFTC’s Whistleblower Office, Christopher Ehrman, stated, “The award today is a demonstration of the program’s commitment to reward those who provide quality information to the CFTC.” Under the CFTC’s program, whistleblowers are eligible to receive between 10 and 30 percent of the monetary sanctions collected from the resulting enforcement action.

    The announcement does not provide details of the information provided or the related enforcement action.

    Securities Whistleblower Dodd-Frank CFTC

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  • SEC requests comments on proposed amendments to whistleblower program

    Agency Rule-Making & Guidance

    On June 28, the SEC voted to propose for public comment several rule amendments that seek to clarify certain existing rules and make technical amendments to its whistleblower program under Section 21F of the Securities Exchange Act. Among other things, the proposed changes would (i) allow awards based on money collected under deferred prosecution agreements and non-prosecution agreements entered into by the DOJ or a state attorney general in a criminal case, or settlement agreements entered into by the SEC outside of a judicial or administrative proceeding that address securities law violations; (ii) eliminate the potential double recovery under the definition of “related action”; (iii) authorize the SEC to adjust an award’s percentage as appropriate to advance the goals of rewarding and incentivizing whistleblowers; (iv) establish a uniform definition of “whistleblower” in response to the Supreme Court's decision in Digital Realty Trust, Inc. v. Somers (as previously covered in a Buckley Sandler Special Alert); and (v) clarify anti-retaliation protection requirements. The SEC also has included interpretative guidance on the terms “unreasonable delay” and “independent analysis.” Comments will be accepted for 60 days following publication in the Federal Register.

    Agency Rule-Making & Guidance SEC Securities Whistleblower

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  • Non-profit advocacy organization accuses UK bank of deceptive report on US whistleblower tip rewards programs

    Financial Crimes

    On June 20, an American non-profit advocacy organization for whistleblowers and a European advocacy organization for whistleblowers formally requested that a UK bank retract a report that they alleges mischaracterizes US whistleblower tip rewards programs, including regarding FCPA tips. The report, originally released in 2014 by the bank in conjunction with the UK’s Financial Conduct Authority, had criticized the use of financial incentives for whistleblowers in the US, arguing that they were ineffective, “don’t generate quality tips,” and “impose expensive and unnecessary governance structures.” The report concluded that the UK should adopt regulatory changes to improve protections for all whistleblowers rather than provide rewards, which allegedly allot large financial payouts to a tiny minority of whistleblowers. 

    The American organization disputed these assertions in a rebuttal report, released this year. According to the whistleblower advocacy organizations, many of the assertions in the bank’s report “are simply false” and the continued use of the report “inhibit[s] the implementation of effective anti-fraud laws in the UK.” The organizations further complained that the 2014 report has been used as justification for stakeholders in UK to not create financial incentives for whistleblowers and that it has stifled momentum in the UK for an effective whistleblower program. 

    Financial Crimes FCPA Whistleblower

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  • District Court rules that Federal Reserve Banks are not federal agencies under False Claims Act


    On May 9, the U.S. District Court for the Eastern District of New York dismissed a qui tam action brought under the False Claims Act (FCA) against a national bank and its predecessors-in-interest (defendants), which alleged that the defendants presented false information to Federal Reserve Banks (FRBanks) in connection with their applications for loans. The court held that allegations of false or fraudulent claims being presented to the FRBanks cannot form the basis of an FCA action because the FRBanks cannot be characterized as the federal government for purposes of the FCA.

    The relators in the action originally brought a whistleblower lawsuit against the bank, alleging that the defendants inaccurately represented their financial condition in order to be eligible to borrow from the FRBanks’ discount window at lower interest rates. By way of background, in order for liability to incur under the FCA, a false or fraudulent claim must be made to the federal government or its agents. Therefore, the court needed to resolve two legal issues: (i) whether FRBanks should be characterized as the government or its agents for purposes of the FCA, and (ii) whether the federal government paid any portion of the loans the defendants received or reimbursed the FRBanks for issuing the loans.

    In supporting its conclusion that FRBanks are not government actors, the court reasoned that the Federal Reserve Act (FRA), which created the Federal Reserve districts and FRBanks, did not designate the FRBanks as part of an executive department or agency. The court also noted that although the Federal Reserve Board of Governors (Board) is a federal agency, each FRBank operates as a private corporation owned by private stockholders, receives no government appropriations, and generates its own income from interest earned on government securities. Furthermore, the court reasoned that the Board provides only general policy supervision, FRBank employees are not government employees, and FRBanks lack the ability to promulgate regulations and operate independently of the Board and the government.

    In resolving the second issue, the court agreed with the defendants’ argument that the bank’s loan requests did not create FCA liability for claims, because the relators did not, and could not, “allege that the [g]overnment either provided any portion of the money loaned to the defendants, or reimbursed [FRBanks] for making the loans.”

    Courts Federal Reserve False Claims Act / FIRREA Whistleblower

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  • District court applies Supreme Court standard to dismiss Dodd-Frank whistleblower claims


    On April 19, the U.S. District Court for the District of New Jersey dismissed a fired executive’s suit against a global financial services firm alleging whistleblowing retaliation claims under Dodd-Frank under the standard set by the U.S. Supreme Court ruling in Digital Realty Trust Inc. v. Somers. (See Buckley Sandler Special Alert on Supreme Court Decision here.) Specifically, the U.S. District court lifted a stay, which the court had imposed pending a decision in Digital Realty Trust, and granted the defendant’s motion to dismiss with prejudice. Noting that the purpose of Dodd-Frank’s anti-retaliation provisions is “to incentivize individuals … to come forward and provide information of securities law violations to the SEC,” the court determined that the plaintiff “had ample time between when he first learned of the violations and his termination to report the misconduct to the SEC,” but he chose not to lodge claims “until well after the fact of the alleged securities violations, his testimony to FINRA and his own termination.” The court also rejected the argument that testimony given to FINRA is sufficient to invoke Dodd-Frank’s whistleblower protections, noting that the plaintiff’s testimony to FINRA “plainly” did not meet statutory requirements.

    Courts Whistleblower U.S. Supreme Court Dodd-Frank Anti-Retaliation SEC

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  • SEC gives first “safe harbor” whistleblower award


    On April 5, the SEC announced an award of over $2.2 million given to a whistleblower who initially reported information to another federal agency and then later to the SEC. The award was the first paid under the “safe harbor” of the Exchange Act Rule 21F-4(b)(7), which provides that the SEC will treat information submitted to it, by a whistleblower, as though it received the information at the same time as another federal agency as long as the whistleblower submits the information to the SEC within 120 days after its submission to the other agency. According to the announcement, the SEC opened an investigation into the reported conduct after it received a referral from the other federal agency. The whistleblower then reported the same information to the SEC and later provided substantial cooperation in the investigation.

    Securities Whistleblower Dodd-Frank SEC

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  • SEC awards highest-ever payout to whistleblowers


    On March 19, the SEC announced its largest-ever payouts for three whistleblowers, totaling around $83 million. According to the announcement, two whistleblowers will share a nearly $50 million award, while a third was awarded more than $33 million. The highest award the SEC had previously given was $30 million in 2014, and since the program’s inception in 2012, the SEC has awarded more than $262 million to 53 whistleblowers. While the SEC did not provide any substantive details on the whistleblowers’ tips or the resulting enforcement action due to confidentiality, media reports the whistleblower tips resulted in a $415 million settlement in 2016 with the large wealth management division of a national bank.

    Securities Whistleblower Dodd-Frank SEC

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  • French pharmaceutical company announces DOJ declination in FCPA investigation

    Financial Crimes

    As previously covered, a French pharmaceutical company announced in October 2014 that it was investigating whether certain payments made by company employees to healthcare professionals in the Middle East and Africa violated the FCPA. The company launched an investigation to review payments made from 2007 to 2012 as a result of anonymous whistleblower allegations, and self-reported the allegations to the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). On March 7, 2018, the company announced in its Form 20-F SEC filing that the DOJ notified the company in February 2018 that it was closing the inquiry into the self-reported whistleblower allegations. The company is continuing to cooperate with the SEC’s review of the allegations.

    Financial Crimes DOJ SEC FCPA Whistleblower

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  • Buckley Sandler Special Alert: Supreme Court limits definition of “whistleblower” in potentially hollow victory for public companies


    Buckley Sandler Special Alert

    On February 21, the U.S. Supreme Court issued its opinion in Digital Realty Trust, Inc. v. Somers, a long-anticipated case that clarifies who is protected as a “whistleblower” under the Dodd-Frank Act’s anti-retaliation provisions. In a unanimous decision penned by Justice Ginsburg, the Court held that the Dodd-Frank Act protects an individual only if he or she has reported a securities law violation to the U.S. Securities & Exchange Commission (SEC)—internal reports are not sufficient.


    * * *

    Click here to read the full special alert.


    If you have questions about the decision or other related issues, please visit our Whistleblower practice page, or contact a Buckley Sandler attorney with whom you have worked in the past.

    Courts U.S. Supreme Court Whistleblower Special Alerts SEC Dodd-Frank

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  • CFTC offers large reward to “pump-and-dump” scheme whistleblowers


    On February 15, the Commodity Futures Trading Commission (CFTC) issued a Consumer Protection Advisory on virtual currency “pump-and-dump” schemes, which offers eligible whistleblowers between 10 and 30 percent of enforcement actions of $1 million or more, which result from the shared information. The notice cautions consumers against falling for the fraudulent “pump-and-dump” schemes, which capitalize on consumers’ fear of missing the potentially lucrative—yet volatile—cryptocurrency market. The advisory warns consumers that many of the perpetrators of these schemes use social media to promote false news reports and create fake urgency for consumers to buy the cryptocurrency immediately. Then, after the price reaches a certain level, the schemers sell their virtual currency and the price begins to fall.

    Fintech Virtual Currency CFTC Bitcoin Cryptocurrency Whistleblower Enforcement

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