The Dodd-Frank Act Enabling SEC Whistleblowers & CFTC Whistleblowers

What is The Dodd-Frank Act

The Dodd-Frank Act Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) is landmark legislation enacted on July 21, 2010, in response to the 2008 financial crisis to try avoid other economic collapses by incentivizing whistleblowers to come forward with information and imposing more stringent industry regulations. In the aftermath of the Great Recession, the law overhauled financial regulations, affecting all federal financial regulatory agencies and nearly every aspect of the nation’s financial services industry.

The 2008 financial crisis, which was caused by a variety of factors, including excessive risk-taking by banks and other financial institutions, left millions of Americans unemployed and put the country in trillions of dollars’ worth of debt. The Dodd-Frank Act was enacted to avert another financial crisis by strengthening the financial system, protecting consumers from unfair financial practices and providing whistleblower awards of up to 30% for individuals who come forward with inside information about unlawful practices.

What Does the Dodd-Frank Act Do?

The Dodd-Frank Act contains several provisions, including:

• It establishes the Consumer Financial Protection Bureau (CFPB), an independent agency charged with protecting consumers from deceptive financial practices. As of this writing, the United States Supreme Court may imminently render an opinion about certain constitutionality of the CFPB’s powers. 
• It governs derivatives, which are complicated financial instruments used to speculate on certain financial products including the housing market which overleveraged certain positions and contributed to the financial crisis.
• It strengthens bank capital requirements, which are the amounts of money that banks must keep in reserve which is critical with the recent implosion of certain banks and certain other banks issues with the stress test.
• It created the Financial Stability Oversight Council (FSOC), an interagency body charged with identifying and responding to systemic risk in the financial system.
• It forbids banks from engaging in certain risky activities such as proprietary trading and hedge fund investing.
• It mandates that banks hold adequate capital reserves, not be overly leveraged and disclose more information about their operations with transparency.
• It has led to the Federal Government proactively stepping in and addressing stressed financial institutions.
  

What Are the Core Principles of the Dodd-Frank Act?

The Dodd-Frank Act’s core principles are intended to strengthen the financial system and protect consumers from abusive financial practices.  The core principles include:

• Transparency: Under the law, financial institutions must disclose  detailed information about their operations, such as trading positions and risk exposures. This data assists investors and consumers in making educated decisions about where to invest their money and how to protect themselves from financial risks.
• Accountability: The law establishes new regulatory bodies, such as the Consumer Financial Protection Bureau (CFPB), to hold entitites accountable for their actions. The CFPB arguably has the authority to investigate and punish financial institutions that engage in abusive practices.
• Fairness: The law prohibits financial market discrimination, such as redlining, the practice of denying loans or other financial services to people in specific neighborhoods. The law also requires financial institutions to provide product and service disclosures in plain language that consumers can understand.
• Consumer protection: The law establishes new consumer safeguards, such as the right to dispute credit card charges and the right to a free credit report from each of the three major credit bureaus once a year. Financial institutions are also prohibited from engaging in certain abusive practices, such as predatory lending, under the law.
• Stability: The law establishes new rules for financial institutions in order to reduce systemic risk. These regulations require banks to hold more capital and disclose more information about their operations. The law also establishes the Financial Stability Oversight Council (FSOC), which  oversees detecting and responding to systemic risk in the financial system.

SEC Whistleblower Program

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 established the SEC Whistleblower Program. The program encourages people to report securities fraud to the SEC by offering monetary rewards in exchange for their information. Further, through the use of an SEC whistleblower attorney the insider could potentially remain anonymous from start to finish.  SEC whistleblowers have received hundreds of millions of dollars in whistleblower awards over the years.  

A whistleblower must provide the SEC with original information that leads to a successful enforcement action in order to be eligible for an award under the program. The information must be both timely and credible, and it must be unknown to the SEC. In addition, the whistleblower must cooperate with the SEC’s investigation.

Since its inception, the SEC Whistleblower Program has been extremely successful. The SEC had awarded over $1.4 billion to whistleblowers as of March 2023. A number of successful enforcement actions have also resulted from the program, including the largest ever settlement with a financial institution, which resulted in a $5 billion fine.

The SEC Whistleblower Program also provides whistleblowers with strong anti-retaliation measures. These measures are intended to prevent whistleblowers from being punished for reporting wrongdoing. If a whistleblower believes they have been retaliated against, they can file a complaint with the Securities and Exchange Commission through a whistleblower law firm. The SEC will investigate the complaint and, if it determines that the whistleblower has been retaliated against, it has the authority to take action against the employer, including:

• Requiring the whistleblower’s reinstatement
• Requiring the employer to pay the whistleblower’s back pay
• Demanding that the employer pay the whistleblower’s legal fees
• Imposing a monetary penalty on the employer

However, a key facet of protection is the anonymous provision which if cloaked properly would potentially evade any retaliation since the identity of the insider could remain secret.

CFTC Whistleblower Program

The Commodity Futures Trading Commission (CFTC) Whistleblower Program was established under Dodd-Frank to regulate the commodities market and have an avenue for commodities whistleblowers to come forward. The Commodity Futures Trading Commission is in charge of regulating the U.S. derivatives markets, which includes futures, options, and swaps and also certain other financial instruments which arguably include some cryptocurrency tokens. Individuals who provide original information to the CFTC that leads to a successful enforcement action resulting in monetary sanctions of more than $1 million are eligible for whistleblower awards under the program of up to 30% of what the government recovers.

The CFTC announced in January 2023 that it had settled a case in which a whistleblower received an award of $10 million. The CFTC was notified by a whistleblower about a foreign exchange trading firm that engaged in spoofing and wash trading. Link- https://www.cftc.gov/PressRoom/PressReleases/8502-22

The CFTC Whistleblower Program is intended to encourage individuals to come forward with information about potential Commodity Exchange Act (CEA) violations. The CEA, which was enacted in 1936 and has undergone multiple amendments, governs the trading of commodity futures in the United States and provides the legal framework under which the CFTC operates. The CFTC Whistleblower program has strict anti-retaliation guidelines to protect whistleblowers from retaliation by their employers. Consult with an experienced CFTC whistleblower law firm to ensure your rights are protected.

CFTC Whistleblower Award

To qualify as a CFTC whistleblower, you must first:

Report original information about violations of the Commodity Exchange Act (CEA) which leads to, or significantly contributes to, successful CFTC enforcement action or a Related Action resulting in monetary sanctions of at least $1,000,000.00.

The Commodity Futures Trading Commission (CFTC) Whistleblower Program encourages those who are aware of violations of the Commodity Exchange Act (CEA) in the United States to inform the CFTC. Depending on your level of cooperation and the information provided, you could receive a whistleblower award ranging from 10% to 30% of the CFTC’s recovery.  The CFTC has awarded approximately $330 million in whistleblower awards since issuing its first award in 2014. To date, more than $3 billion have been recovered through the CFTC whistleblower program.

“I strongly emphasize the vital importance of the SEC and the CFTC Whistleblower Program. These programs serves as a critical tool for protecting the integrity of commodity markets and the securities and exchange and ensuring the necessary accountability for those who disregard the law. Its past achievements, marked by numerous successful enforcement actions, validate its effectiveness, and the courage of insiders to step forward the right way and anonymously provide information through a whistleblower law firm create a win.”-Jason T. Brown, head of the whistleblower law firm, Brown, LLC and former FBI Special Agent.

Choosing a Whistleblower Law Firm

Whistleblower law firms have legal experience and expertise. They are well-versed in the SEC Whistleblower Program and other whistleblower laws. They can assist you in understanding your rights and options, as well as navigating the complicated process of reporting wrongdoing. The SEC receives a large number of whistleblower TCR reports. This means that if you do not have an experienced attorney representing you, your submission may not receive the attention it deserves. 

Additionally, you only get one shot at framing the issue as tightly as possible for a potential action. Making a mistake could jeopardize your case. An experienced attorney can assist you in doing so correctly. Whistleblower law firms can also help you maintain your anonymity. If you are concerned about retaliation from your employer, a whistleblower law firm can assist you in concealing your identity.