For corporate whistleblowers, the Securities and Exchange Commission (SEC) may no longer be the only game in town. New York Attorney General Eric T. Schneiderman recently announced plans to introduce the Financial Frauds Whistleblower Act, a whistleblower program that will provide monetary incentives for who report financial misconduct.
“New York has a unique opportunity to set the gold standard for states seeking to expose and hold individuals accountable for financial crimes. This law will be the strongest, most comprehensive in the nation, and is long overdue for a state with the world’s most important financial markets,” Schneiderman said in a press statement. Attorney General Schneiderman’s proposed whistleblower statute is modeled after the SEC’s bounty program. As previously discussed on the Scarinci Hollenbeck Business Law Blog, the SEC whistleblower program is going strong. The agency received 3,620 whistleblower tips in FY 2014, which represents a more than 20 percent increase in the number of whistleblower tips in just two years. Last September, the SEC authorized its largest payout to date, an award of more than $30 million to a whistleblower who provided key original information that led to a successful enforcement action.
The proposed New York whistleblower program would specifically provide financial compensation to whistleblowers who voluntarily report fraud in the banking, insurance, and financial services industries, and whose tips lead to more than $1 million in penalties or settlement proceeds. Whistleblowers would be eligible to receive 10-30 percent of the money obtained.
As with similar whistleblower programs, the proposed law would also guarantee the confidentiality of the whistleblower’s information. In addition, current and prospective employers would be expressly prohibited from discharging, demoting, suspending, or otherwise harassing employees who report suspicious or fraudulent activity to supervisory or internal compliance staff.
With regard to logistics, a Financial Services Whistleblower Awards program would be created within the State’s Department of Financial Services to reward whistleblowers for tips to that agency. Payments to whistleblowers would be funded from monetary recoveries paid by wrongdoers and not from state funds.
In order to be implemented, the New York State legislature must approve the bill. We will be closely tracking the status of the proposal and will provide updates as they become available.
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