Whistleblower Lawyer Blog

Thus, just as the new IRS Whistleblower Program has unfolded through rules and regulations implementing the IRS Whistleblower law that was amended in December 2006, the SEC and Commodity Futures whistleblower rules and regulations must be established within 270 days.

Corrupt practices and fraud in the securities and commodities businesses will now face increased scrutiny with these common sense and cost-effective programs to enforce the law. Whistleblowers will be encouraged to report and stop the next Madoff.

The full text of section 748 of the financial reform bill, which contains the CFTC whistleblower provisions, is reprinted below:

SEC. 748. COMMODITY WHISTLEBLOWER INCENTIVES AND PROTECTION.
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended
by adding at the end the following:
‘‘SEC. 23. COMMODITY WHISTLEBLOWER INCENTIVES AND PROTECTION.
‘‘(a) DEFINITIONS.—In this section:
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‘‘(1) COVERED JUDICIAL OR ADMINISTRATIVE ACTION.—The
term ‘covered judicial or administrative action’ means any
judicial or administrative action brought by the Commission
under this Act that results in monetary sanctions exceeding
$1,000,000.
‘‘(2) FUND.—The term ‘Fund’ means the Commodity
Futures Trading Commission Customer Protection Fund established
under subsection (g).
‘‘(3) MONETARY SANCTIONS.—The term ‘monetary sanctions’,
when used with respect to any judicial or administrative action
means—
‘‘(A) any monies, including penalties, disgorgement,
restitution, and interest ordered to be paid; and
‘‘(B) any monies deposited into a disgorgement fund
or other fund pursuant to section 308(b) of the Sarbanes-
Oxley Act of 2002 (15 U.S.C. 7246(b)), as a result of such
action or any settlement of such action.
‘‘(4) ORIGINAL INFORMATION.—The term ‘original information’
means information that—
‘‘(A) is derived from the independent knowledge or
analysis of a whistleblower;
‘‘(B) is not known to the Commission from any other
source, unless the whistleblower is the original source of
the information; and
‘‘(C) is not exclusively derived from an allegation made
in a judicial or administrative hearing, in a governmental
report, hearing, audit, or investigation, or from the news
media, unless the whistleblower is a source of the information.
‘‘(5) RELATED ACTION.—The term ‘related action’, when used
with respect to any judicial or administrative action brought
by the Commission under this Act, means any judicial or
administrative action brought by an entity described in subclauses
(I) through (VI) of subsection (h)(2)(C) that is based
upon the original information provided by a whistleblower
pursuant to subsection (a) that led to the successful enforcement
of the Commission action.
‘‘(6) SUCCESSFUL RESOLUTION.—The term ‘successful resolution’,
when used with respect to any judicial or administrative
action brought by the Commission under this Act, includes
any settlement of such action.
‘‘(7) WHISTLEBLOWER.—The term ‘whistleblower’ means any
individual, or 2 or more individuals acting jointly, who provides
information relating to a violation of this Act to the Commission,
in a manner established by rule or regulation by the
Commission.
‘‘(b) AWARDS.—
‘‘(1) IN GENERAL.—In any covered judicial or administrative
action, or related action, the Commission, under regulations
prescribed by the Commission and subject to subsection (c),
shall pay an award or awards to 1 or more whistleblowers
who voluntarily provided original information to the Commission
that led to the successful enforcement of the covered
judicial or administrative action, or related action, in an aggregate
amount equal to—
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‘‘(A) not less than 10 percent, in total, of what has
been collected of the monetary sanctions imposed in the
action or related actions; and
‘‘(B) not more than 30 percent, in total, of what has
been collected of the monetary sanctions imposed in the
action or related actions.
‘‘(2) PAYMENT OF AWARDS.—Any amount paid under paragraph
(1) shall be paid from the Fund.
‘‘(c) DETERMINATION OF AMOUNT OF AWARD; DENIAL OF
AWARD.—
‘‘(1) DETERMINATION OF AMOUNT OF AWARD.—
‘‘(A) DISCRETION.—The determination of the amount
of an award made under subsection (b) shall be in the
discretion of the Commission.
‘‘(B) CRITERIA.—In determining the amount of an
award made under subsection (b), the Commission—
‘‘(i) shall take into consideration—
‘‘(I) the significance of the information provided
by the whistleblower to the success of the
covered judicial or administrative action;
‘‘(II) the degree of assistance provided by the
whistleblower and any legal representative of the
whistleblower in a covered judicial or administrative
action;
‘‘(III) the programmatic interest of the
Commission in deterring violations of the Act
(including regulations under the Act) by making
awards to whistleblowers who provide information
that leads to the successful enforcement of such
laws; and
‘‘(IV) such additional relevant factors as the
Commission may establish by rule or regulation;
and
‘‘(ii) shall not take into consideration the balance
of the Fund.
‘‘(2) DENIAL OF AWARD.—No award under subsection (b)
shall be made—
‘‘(A) to any whistleblower who is, or was at the time
the whistleblower acquired the original information submitted
to the Commission, a member, officer, or employee
of—
‘‘(i) a appropriate regulatory agency;
‘‘(ii) the Department of Justice;
‘‘(iii) a registered entity;
‘‘(iv) a registered futures association;
‘‘(v) a self-regulatory organization as defined in
section 3(a) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)); or
‘‘(vi) a law enforcement organization;
‘‘(B) to any whistleblower who 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;
‘‘(C) to any whistleblower who submits information
to the Commission that is based on the facts underlying
the covered action submitted previously by another whistleblower;
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‘‘(D) to any whistleblower who fails to submit information
to the Commission in such form as the Commission
may, by rule or regulation, require.
‘‘(d) REPRESENTATION.—
‘‘(1) PERMITTED REPRESENTATION.—Any whistleblower who
makes a claim for an award under subsection (b) may be
represented by counsel.
‘‘(2) REQUIRED REPRESENTATION.—
‘‘(A) IN GENERAL.—Any whistleblower who anonymously
makes a claim for an award under subsection (b)
shall be represented by counsel if the whistleblower submits
the information upon which the claim is based.
‘‘(B) DISCLOSURE OF IDENTITY.—Prior to the payment
of an award, a whistleblower shall disclose the identity
of the whistleblower and provide such other information
as the Commission may require, directly or through counsel
for the whistleblower.
‘‘(e) NO CONTRACT NECESSARY.—No contract with the Commission
is necessary for any whistleblower to receive an award under
subsection (b), unless otherwise required by the Commission, by
rule or regulation.
‘‘(f) APPEALS.—
‘‘(1) IN GENERAL.—Any determination made under this section,
including whether, to whom, or in what amount to make
awards, shall be in the discretion of the Commission.
‘‘(2) APPEALS.—Any determination described in paragraph
(1) may be appealed to the appropriate court of appeals of
the United States not more than 30 days after the determination
is issued by the Commission.
‘‘(3) REVIEW.—The court shall review the determination
made by the Commission in accordance with section 7064 of
title 5, United States Code.
‘‘(g) COMMODITY FUTURES TRADING COMMISSION CUSTOMER
PROTECTION FUND.—
‘‘(1) ESTABLISHMENT.—There is established in the Treasury
of the United States a revolving fund to be known as the
‘Commodity Futures Trading Commission Customer Protection
Fund’.
‘‘(2) USE OF FUND.—The Fund shall be available to the
Commission, without further appropriation or fiscal year limitation,
for—
‘‘(A) the payment of awards to whistleblowers as provided
in subsection (a); and
‘‘(B) the funding of customer education initiatives
designed to help customers protect themselves against
fraud or other violations of this Act, or the rules and
regulations thereunder.
‘‘(3) DEPOSITS AND CREDITS.—There shall be deposited into
or credited to the Fund:
‘‘(A) MONETARY SANCTIONS.—Any monetary sanctions
collected by the Commission in any covered judicial or
administrative action that is not otherwise distributed to
victims of a violation of this Act or the rules and regulations
thereunder underlying such action, unless the balance of
the Fund at the time the monetary judgment is collected
exceeds $100,000,000.
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‘‘(B) ADDITIONAL AMOUNTS.—If the amounts deposited
into or credited to the Fund under subparagraph (A) are
not sufficient to satisfy an award made under subsection
(b), there shall be deposited into or credited to the Fund
an amount equal to the unsatisfied portion of the award
from any monetary sanction collected by the Commission
in any judicial or administrative action brought by the
Commission under this Act that is based on information
provided by a whistleblower.
‘‘(C) INVESTMENT INCOME.—All income from investments
made under paragraph (4).
‘‘(4) INVESTMENTS.—
‘‘(A) AMOUNTS IN FUND MAY BE INVESTED.—The
Commission may request the Secretary of the Treasury
to invest the portion of the Fund that is not, in the Commission’s
judgment, required to meet the current needs of
the Fund.
‘‘(B) ELIGIBLE INVESTMENTS.—Investments shall be
made by the Secretary of the Treasury in obligations of
the United States or obligations that are guaranteed as
to principal and interest by the United States, with maturities
suitable to the needs of the Fund as determined
by the Commission.
‘‘(C) INTEREST AND PROCEEDS CREDITED.—The interest
on, and the proceeds from the sale or redemption of, any
obligations held in the Fund shall be credited to, and
form a part of, the Fund.
‘‘(5) REPORTS TO CONGRESS.—Not later than October 30
of each year, the Commission shall transmit to the Committee
on Agriculture, Nutrition, and Forestry of the Senate, and
the Committee on Agriculture of the House of Representatives
a report on—
‘‘(A) the Commission’s whistleblower award program
under this section, including a description of the number
of awards granted and the types of cases in which awards
were granted during the preceding fiscal year;
‘‘(B) customer education initiatives described in paragraph
(2)(B) that were funded by the Fund during the
preceding fiscal year;
‘‘(C) the balance of the Fund at the beginning of the
preceding fiscal year;
‘‘(D) the amounts deposited into or credited to the
Fund during the preceding fiscal year;
‘‘(E) the amount of earnings on investments of amounts
in the Fund during the preceding fiscal year;
‘‘(F) the amount paid from the Fund during the preceding
fiscal year to whistleblowers pursuant to subsection
(b);
‘‘(G) the amount paid from the Fund during the preceding
fiscal year for customer education initiatives
described in paragraph (2)(B);
‘‘(H) the balance of the Fund at the end of the preceding
fiscal year; and
‘‘(I) a complete set of audited financial statements,
including a balance sheet, income statement, and cash
flow analysis.
‘‘(h) PROTECTION OF WHISTLEBLOWERS.—
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‘‘(1) PROHIBITION AGAINST RETALIATION.—
‘‘(A) IN GENERAL.—No employer may discharge,
demote, suspend, threaten, harass, directly or indirectly,
or in any other manner discriminate against, a whistleblower
in the terms and conditions of employment because
of any lawful act done by the whistleblower—
‘‘(i) in providing information to the Commission
in accordance with subsection (b); or
‘‘(ii) in assisting in any investigation or judicial
or administrative action of the Commission based upon
or related to such information.
‘‘(B) ENFORCEMENT.—
‘‘(i) CAUSE OF ACTION.—An individual who alleges
discharge or other discrimination in violation of
subparagraph (A) may bring an action under this subsection
in the appropriate district court of the United
States for the relief provided in subparagraph (C),
unless the individual who is alleging discharge or other
discrimination in violation of subparagraph (A) is an
employee of the Federal Government, in which case
the individual shall only bring an action under section
1221 of title 5, United States Code.
‘‘(ii) SUBPOENAS.—A subpoena requiring the
attendance of a witness at a trial or hearing conducted
under this subsection may be served at any place in
the United States.
‘‘(iii) STATUTE OF LIMITATIONS.—An action under
this subsection may not be brought more than 2 years
after the date on which the violation reported in
subparagraph (A) is committed.
‘‘(C) RELIEF.—Relief for an individual prevailing in an
action brought under subparagraph (B) shall include—
‘‘(i) reinstatement with the same seniority status
that the individual would have had, but for the
discrimination;
‘‘(ii) the amount of back pay otherwise owed to
the individual, with interest; and
‘‘(iii) compensation for any special damages sustained
as a result of the discharge or discrimination,
including litigation costs, expert witness fees, and
reasonable attorney’s fees.
‘‘(2) CONFIDENTIALITY.—
‘‘(A) IN GENERAL.—Except as provided in subparagraphs
(B) and (C), the Commission, and any officer or
employee of the Commission, shall not disclose any information,
including information provided by a whistleblower
to the Commission, which could reasonably be expected
to reveal the identity of a whistleblower, except in accordance
with the provisions of section 552a of title 5, United
States Code, unless and until required to be disclosed to
a defendant or respondent in connection with a public
proceeding instituted by the Commission or any entity
described in subparagraph (C). For purposes of section
552 of title 5, United States Code, this paragraph shall
be considered a statute described in subsection (b)(3)(B)
of such section 552.
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‘‘(B) EFFECT.—Nothing in this paragraph is intended
to limit the ability of the Attorney General to present
such evidence to a grand jury or to share such evidence
with potential witnesses or defendants in the course of
an ongoing criminal investigation.
‘‘(C) AVAILABILITY TO GOVERNMENT AGENCIES.—
‘‘(i) IN GENERAL.—Without the loss of its status
as confidential in the hands of the Commission, all
information referred to in subparagraph (A) may, in
the discretion of the Commission, when determined
by the Commission to be necessary or appropriate to
accomplish the purposes of this Act and protect customers
and in accordance with clause (ii), be made
available to—
‘‘(I) the Department of Justice;
‘‘(II) an appropriate department or agency of
the Federal Government, acting within the scope
of its jurisdiction;
‘‘(III) a registered entity, registered futures
association, or self-regulatory organization as
defined in section 3(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78c(a));
‘‘(IV) a State attorney general in connection
with any criminal investigation;
‘‘(V) an appropriate department or agency of
any State, acting within the scope of its jurisdiction;
and
‘‘(VI) a foreign futures authority.
‘‘(ii) MAINTENANCE OF INFORMATION.—Each of the
entities, agencies, or persons described in clause (i)
shall maintain information described in that clause
as confidential, in accordance with the requirements
in subparagraph (A).
‘‘(iii) STUDY ON IMPACT OF FOIA EXEMPTION ON
COMMODITY FUTURES TRADING COMMISSION.—
‘‘(I) STUDY.—The Inspector General of the
Commission shall conduct a study—
‘‘(aa) on whether the exemption under section
552(b)(3) of title 5, United States Code
(known as the Freedom of Information Act)
established in paragraph (2)(A) aids whistleblowers
in disclosing information to the
Commission;
‘‘(bb) on what impact the exemption has
had on the public’s ability to access information
about the Commission’s regulation of commodity
futures and option markets; and
‘‘(cc) to make any recommendations on
whether the Commission should continue to
use the exemption.
‘‘(II) REPORT.—Not later than 30 months after
the date of enactment of this clause, the Inspector
General shall—
‘‘(aa) submit a report on the findings of
the study required under this clause to the
Committee on Banking, Housing, and Urban
Affairs of the Senate and the Committee on
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Financial Services of the House of Representatives;
and
‘‘(bb) make the report available to the
public through publication of a report on the
website of the Commission.
‘‘(3) RIGHTS RETAINED.—Nothing in this section shall be
deemed to diminish the rights, privileges, or remedies of any
whistleblower under any Federal or State law, or under any
collective bargaining agreement.
‘‘(i) RULEMAKING AUTHORITY.—The Commission shall have the
authority to issue such rules and regulations as may be necessary
or appropriate to implement the provisions of this section consistent
with the purposes of this section.
‘‘(j) IMPLEMENTING RULES.—The Commission shall issue final
rules or regulations implementing the provisions of this section
not later than 270 days after the date of enactment of the Wall
Street Transparency and Accountability Act of 2010.
‘‘(k) ORIGINAL INFORMATION.—Information submitted to the
Commission by a whistleblower in accordance with rules or regulations
implementing this section shall not lose its status as original
information solely because the whistleblower submitted such
information prior to the effective date of such rules or regulations,
provided such information was submitted after the date of enactment
of the Wall Street Transparency and Accountability Act of
2010.
‘‘(l) AWARDS.—A whistleblower may receive an award pursuant
to this section regardless of whether any violation of a provision
of this Act, or a rule or regulation thereunder, underlying the
judicial or administrative action upon which the award is based
occurred prior to the date of enactment of the Wall Street Transparency
and Accountability Act of 2010.
‘‘(m) PROVISION OF FALSE INFORMATION.—A whistleblower who
knowingly and willfully makes any false, fictitious, or fraudulent
statement or representation, or who makes or uses any false writing
or document knowing the same to contain any false, fictitious,
or fraudulent statement or entry, shall not be entitled to an award
under this section and shall be subject to prosecution under section
1001 of title 18, United States Code.
‘‘(n) NONENFORCEABILITY OF CERTAIN PROVISIONS WAIVING
RIGHTS AND REMEDIES OR REQUIRING ARBITRATION OF DISPUTES.—
‘‘(1) WAIVER OF RIGHTS AND REMEDIES.—The rights and
remedies provided for in this section may not be waived by
any agreement, policy form, or condition of employment
including by a predispute arbitration agreement.
‘‘(2) PREDISPUTE ARBITRATION AGREEMENTS.—No predispute
arbitration agreement shall be valid or enforceable, if the agreement
requires arbitration of a dispute arising under this section.’’.