Over the past several months, many people have asked me what I think, as an SEC whistleblower lawyer, about the future of the SEC whistleblower program in light of the current Presidential administration’s calls to “repeal” the Dodd-Frank Act.
This question has come up again following U.S. Representative Jeb Hensarling’s public presentation last week of a “discussion draft” of an updated version of his Financial CHOICE Act. The new version, officially named the Financial CHOICE Act of 2017, is already being commonly referred to as the Financial CHOICE Act 2.0.
Representative Hensarling is the Chairman of the U.S. House of Representatives’ Financial Services Committee. For my discussion of his original 2016 Financial CHOICE Act proposal, click here.
My Impressions As An SEC Whistleblower Lawyer
Previously, I stated my belief that regardless of whatever eventually happens to the Dodd-Frank Act, the SEC whistleblower program is not likely to be repealed. Certain provisions of the SEC whistleblower program may be modified, possibly changing certain requirements or conditions for receiving an SEC whistleblower award, but the program itself is not likely to be eliminated.
That is still my present belief. It is supported by my reading of the “discussion draft” of Chairman Hensarling’s Financial CHOICE Act 2.0.
The Post-Election Timeline
Shortly after the 2016 Presidential election, I wrote a three-part article in which I explained how federal whistleblower programs have historically enjoyed bipartisan support.
In February of this year, I wrote about a letter that two Republican U.S. Senate Committee Chairmen sent to the CFTC urging stronger whistleblower protections.
At the end of March, I analyzed a bipartisan bill that was introduced in the U.S. Senate to enhance the civil penalties available to the U.S. Securities and Exchange Commission (“SEC”).
One theme of those articles is that the trend in the U.S. Congress continues to be supportive of SEC whistleblowers. The proposed Financial CHOICE Act 2.0 appears to be consistent with that theme.
Proposed Act Leaves The SEC Whistleblower Program Almost Entirely As Is
The draft Financial CHOICE Act 2.0 is approximately 593 pages long.
I have not read the draft bill line-by-line in its entirety yet. But my reading of those sections that are titled as having to do with the SEC or the SEC whistleblower program reveal that the Financial CHOICE Act 2.0 would not merely preserve the SEC whistleblower program. It would leave it almost entirely intact, in its original form as found in the Dodd-Frank Act.
So far as I can tell, Chairman Hensarling’s proposed Financial CHOICE Act 2.0 would make only a single modification to the SEC whistleblower program as it currently exists.
SEC Whistleblower Awards For Intentionally Culpable Violators
As I explained approximately 2½ months ago, under the SEC whistleblower program as it currently exists, if a person is criminally convicted of the same fraud that they report to the SEC, they will be ineligible to receive an SEC whistleblower award.
In the federal context, criminal cases are brought by the U.S. Department of Justice and the U.S. Attorneys’ Offices. The SEC does not prosecute people criminally. The SEC brings “civil” actions and imposes “civil” fines and penalties.
As it now stands under the Dodd-Frank Act, if the SEC brings a case against an otherwise qualified SEC whistleblower, that person is still eligible to receive an SEC whistleblower award. The caveat is that the person’s SEC whistleblower award determination will be offset by the amount of the fraud that they were responsible for.
In that same article, I predicted that the Financial CHOICE Act 2.0 would not seek to dismantle the SEC whistleblower program, but would rather attempt to take the already-existing ban on criminal convicts receiving SEC whistleblower awards, and extend that ban to those found liable solely in SEC civil actions.
That prediction appears to have been accurate, as this seems to be the one and only change that the proposed Financial CHOICE Act 2.0 would make to the SEC whistleblower program. (See the discussion draft of the Financial CHOICE Act of 2017 §§ 828, 857.)
According to the draft bill, a whistleblower, who is found liable in an SEC civil action for the same conduct or fraud that he/she reported to the SEC, would no longer be eligible to receive an SEC whistleblower reward.
Comfort For An SEC Whistleblower Or SEC Whistleblower Lawyer
For the past year or so, Chairman Hensarling has been one of the most high-profile and vocal critics in Congress calling for the “dismantling” of Dodd-Frank.
The recently unveiled draft of his Financial CHOICE Act 2.0 should provide some comfort to an SEC whistleblower or SEC whistleblower attorney. Based on the text of the draft, it seems that Chairman Hensarling recognizes the importance and value of the SEC whistleblower program, and does not intend to destroy it as some people may have feared.
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As an SEC whistleblower law firm, The Pickholz Law Offices has represented employees, officers, and others in SEC whistleblower cases involving financial institutions and public companies listed in the Fortune Top 10, Top 20, Top 50, Top 100, Top 500, and the Forbes Global 2000. We were the first law firm ever to win an SEC whistleblower award for a client on appeal to the full Commission in Washington, an achievement that Inside Counsel magazine named as one of the milestones of the SEC whistleblower program.
For more information about The Pickholz Law Offices, you can click on any of the links in the margins of this page.
If you would like to speak with an SEC whistleblower lawyer, please feel free to call Jason R. Pickholz at 347-746-1222.
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