The Dodd-Frank law means there will be a lot of them.
Online PR News – 09-November-2010 – – The Dodd-Frank Wall Street Reform and Consumer Protection Act is now law.
Those who have charged the Obama administration and Congress with being hostile to free-market enterprise may take heart from a nugget in the bill. Deep within its thousands of pages it encourages whistleblowers to identify securities or commodities fraud by allowing them to share in the recoveries obtained from the information they provide. These provisions modify the Commodities Exchange Act. They don't create new bases for liability, but they do acknowledge, implicitly, that agencies can't do all the work and that it's therefore necessary to encourage civilian participation. Whistleblowers who provide information of a fraud to the Securities and Exchange Commission or theCommodity Futures Trading Commision can receive 10% to 30% of the recovery when there are sanctions of more than $1 million.
The provisions are modeled on the False Clains Act, which allows whistleblowers who report fraud related to government procurement to share in any government recovery. The False Claims Act has delivered billions of dollars to the federal government and hundreds of millions to whistleblowers, a bargain considering how many additional regulators could have been employed without necessarily achieving nearly as much. Dodd-Frank is designed to ferret out financial fraud and crimes regardless of whether government procurements are involved.
Judging from what has happened with the False Claim Act, Dodd-Frank whistleblower suits will likely mainly concern accounting fraud at companies that file with the SEC. Whistleblower lawsuits also may happen when market participants--hedge fund operators or commodities traders--learn of fraud in their markets; for example, they may identify accounting fraud when their own rigorous analyses raise questions about a company's representations. Likewise, commodities traders may identify market manipulations such as the cornering of a futures market. Employees of fraudulent companies may also start the process.
Had the Dodd-Frank whistleblower provision been in place earlier, the fraud perpetrated by Bernard Madoff, the rampant subprime mortgage and securitization mess, and BP's alleged manipulation of the propane market, to name but a few events, might have been brought to light far sooner, perhaps preventing their worst effects while earning whistleblowers tens of millions of dollars. That's because the free market provides the best protection from abuses of the free market, and the whistleblower provisions effectively acknowledge that.
For more info: